Lincoln Industries has a line of credit at Bank Two that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 20% of the amount borrowed. The firm has borrowed $800,000 during the year under the agreement. Calculate the effective annual rate on the firm's borrowing in each of the following circumstances:

(Round to two decimal places.)

a.The firm normally maintains no deposit balance at Bank Two.

b.The firm normally maintains $80,000 in deposit balance at Bank Two.

c.The firm normally maintains $220,000 deposit balance at Bank Two.

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