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Question: Effective Interest Rate and Compensating Balance. Wilson Corporation has a credit line of $800,000. The compensating balance requirement on outstanding loans is 14 percent,

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Effective Interest Rate and Compensating Balance. Wilson Corporation has a credit line of $800,000. The compensating balance requirement on outstanding loans is 14 percent, and 8 percent on the unused credit line. The company borrows $500,000 at a 20 percent interest rate. (a) What is the required compensating balance? (b) What is the effective interest rate?

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