Summit Record Company is negotiating with two banks for a $136,000 loan. Fidelity Bank requires a 14 percent compensating balance, discounts the loan, and wants to be paid back in four quarterly payments. Southwest Bank requires a 7 percent compensating balance, does not discount the loan, but wants to be paid back in 12 monthly installments. The stated rate for both banks is 10 percent.

(a-1)

Calculate the effective interest rate for Fidelity Bank and Southwest Bank. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Effective rate
Fidelity Bank	%
Southwest Bank	%

(a-2)

Which loan should Summit accept?

	Southwest Bank
	Fidelity Bank

(b)	Recompute the effective cost of interest, assuming that Summit ordinarily maintains $19,040 at each bank in deposits that will serve as compensating balances. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Effective rate
Fidelity Bank	%
Southwest Bank	%

(c)

Does your choice of banks change if the assumption in part b is correct?

	Yes
	No