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Minnerly Motors recently borrowed an equipment loan of $20,000 with a nominal discount interest rate of 12.5% with quarterly compounding that requires 10% compensating balance.

Minnerly Motors recently borrowed an equipment loan of $20,000 with a nominal discount interest rate of 12.5% with quarterly compounding that requires 10% compensating balance. What is the effective annual rate (EAR) of the loan assuming 365-day per year?

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