Compensating balance. On January 2, 20X1, Uptown Hospital established a line of credit with First Union National Bank. The terms of the line of credit called for a $400,000 maximum loan with an interest rate of 3 percent. The compensating balance requirement is 5 percent of the total line of credit (with no additional fees charged).

a. What would be the effective interest rate for Uptown Hospital if 50 percent of the total amount were used during the year?

b. What would be the effective interest rate if only 25 percent of the total loan were used during the year?

c. How would the answer to question a change if the additional fees were $500?

d. How would the answer to question b change if the additional fees were $1,000?