8)

Carey Company is borrowing $250,000 for one year at 10.0 percent from Second Intrastate Bank. The bank requires a 18 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed Compensating balance).

a.	What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)

Effective rate of interest

%

b.	What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.)

Effective rate of interest

%