Riordan Manufacturing Has Taken Out an $80,000 Short-Term Bank Loan

Multiple Choice

Riordan Manufacturing has taken out an $80,000 short-term bank loan that has a 10% interest rate. The loan requires that Riordan maintain a compensating balance of 15% of the amount borrowed. Calculate the effective interest rate on the loan.

A) 10.0%
B) 11.2%
C) 11.8%
D) 12.4%
E) 12.8%