Deep Sea Mining Inc. wants to preserve financial flexibility by obtaining a line of credit for $10 million. The interest on any money borrowed is 12% (with annual compounding) and there is a 15% compensating balance requirement, i.e., 15% of the money borrowed must be kept in a non-interest bearing account with the bank.

The company wants to borrow $1,000,000 to build a new mine.

Attempt 1/10 for 8.5 pts.

Part 1

What is the annual interest rate on the loan if the company borrows $1,000,000 for one year?

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