Lincoln Industries has a line of credit at Bank Two that requires it to pay 6 % interest on its borrowing and to maintain a compensating balance equal to 20 % of the amount borrowed. The firm has borrowed $740,000 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 $140,000 in deposit balance at Bank Two.

c. The firm normally maintains $160,000 deposit balance at Bank Two.

d. Compare, contrast, and discuss your findings in parts a, b, and c.