In exchange for a $500,000 fixed commitment line of credit, a firm has agreed to do the following:

1. Pay 1% per month on any funds actually borrowed.

2. Maintain a 5% compensating balance on any funds actually borrowed.

3. Pay an up-front commitment fee of 0.25% of the amount of the line.

a. Ignoring the commitment fee, what is the EAR on this line of credit.

b. Assume the firm immediately borrows $100,000 from the line to use for one year. What is the EAR on this $100,000?