12. Compensating Balances. A bank loan has a quoted annual rate of 6%. However, the borrower must maintain a balance of 25% of the amount of the loan, and the balance does not earn any interest. (LOS)

a. What is the effective rate of interest if the loan is for 1 year and is paid off in one payment at the end of the year?

b. What is the effective rate of interest if the loan is for 1 month?