Compensating balances and effective annual rates Lincoln Industries has a line of credit at Bank Two that requires it to pay 7% interest on its borrowing and to maintain a compensating balance equal to 10% of the amount borrowed. The firm has borrowed $620,000 during the year under the agreement. Calculate the effective annual rate on the firm's borrowing in each of the following circumstances: a. The firm normally maintains no deposit balance at Bank Two. b. The firm normally maintains $50,000 in deposit balance at Bank Two. c. The firm normally maintains $90,000 deposit balance at Bank Two d. Compare, contrast, and discuss your findings in parts a, b, and e. a. If the firm normally maintains no deposit balance at the bank, the effective annual rate of interest is % (Round to two decimal places.) b. If the firm normally maintains $50,000 in deposit balances at the bank, the effective annual rate of interest is %. (Round to two decimal places.) c. If the firm normally maintaina $90,000 in deposit balances at the bank, the effective annual rato of interest is % (Round to two decimal places.) d. Compare, contrast, and discuss your findings in parts a, b, and e. (Select the best answer below.) OA. The lowest effective interest rate occurs in part b, when Lincoln has $50,000 on deposit. In parts a and e, the need to use a portion of the loan proceeds for compensating balances raises the borrowing cost. OB. The lowest effective interest rate occurs in part a, when Lincoln has has no deposit balance. In parts b and c, the need to use a portion of the loan proceeds for compensating balances raises the borrowing cost. OC. The lowest effective interest rate occurs in parte, when Lincoln has $90,000 on deposit. In parts a and b, the need to use a portion of the loan proceeds for compensating balances raises the borrowing cost. OD. The effective annual rate of interest is the same for parts a, b, and c with a rate of 7% Click to select your answer(s). MACBOOK 20