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3. PAC Inc. has arranged for their company (Actors Guild Inc.) to get a short-term bank loan for the Fall season. The interest rate will

3. PAC Inc. has arranged for their company (Actors Guild Inc.) to get a short-term bank loan for the Fall season. The interest rate will be 12% per annum with the interest paid in advance. The President of the bank requests that Actors Guild Inc. keep 10% compensating balances for the full term of the loan. If Actors Guild Inc. plans to borrow $500,000 for 6 months what is the effective cost of this bank loan?

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