Suppose your firm is seeking a five year, amortizing $270,000 loan with annual payments and your bank is offering you the choice between a $278,500 loan with a $8,500 compensating balance and a $270,000 loan without a compensating balance. The interest rate on the $270,000 loan is 10.0 percent.

How low would the interest rate on the loan with the compensating balance have to be for you to choose it? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Interest rate

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