Rogerson Corporation borrowed \$1 million from State National Bank on July 1, 1979. The bank charged Rogerson Corporation interest at its prime lending rate of 8 percent. The principal and interest on the loan is repayable on June 30, 1980. Rogerson Corporation must maintain a \(\$ 100,000\) compensating balance in an interest-free checking account at State National Bank during the term of the loan.

a What is the effective annual interest rate that Rogerson Corporation is paying on this loan?

b What message to Rogerson Corporation is implicit in State National Bank's requirement that a compensating balance be maintained?