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Effective annual rate A financial institution made a $10,000, 1-yeardiscount loan at 10% interest, requiring a compensating balanceequal to 20% of the face value of

Effective annual rate

A financial institution made a $10,000, 1-yeardiscount loan at 10% interest, requiring a compensating balanceequal to 20% of the face value of the loan. Determine theeffective annual rate associated with this loan.(Note: Assume that the firm currently maintains $0 ondeposit in the financial institution.)

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