Problem 8-14 Compensating balances and installment loans [LO2] Carey Company is borrowing $250,000 for one year at 13.5 percent from Second Intrastate Bank. The bank requires a 20 percent compensating balance. The principal refers to funds the firm can effectively utilize (Amount borrowed Compensating balance). a. What is the effective rate of interest? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % b. What would the effective rate be if Carey were required to make 12 equal monthly payments to retire the loan? (Use a 360-day year. Input your answer as a percent rounded to 2 decimal places.) Effective rate of interest % References Worksheet