J. D. Chamberlain has recently negotiated a working capital loan of $500,000 for Jarol Hotels. The loan agreement has a stated annual interest rate of 12%. In addition, Carol Farmer, the vice president, has negotiated a 3% cash discount for a furniture and equipment purchase of $200,000. The terms are 3/10, 1/30.

Required:

1. Determine the effective interest rate of the working capital loan if a 10%

compensating balance is required.

2. Determine the effective interest rate of the cash discount.