The KEY here is that you MUST remember the equation rper=USABLEfundscostofborrowing A bank offers you a .0175 QUARTERLY rate on a $10,000 loan. **the loan compounds quarterly** HOWEVER, you must keep a 5\% "compensating balance" 1) What is your periodic rate? 1) What is your QUARTERLY cost of borrowing 2) What is the amount of your USABLE funds 2) What is your APR 3) What is your EAR 4) ?? What would your results be if your loan compounded monthly? 5) EXPLAIN the difference in your outcomes (you may do this on your excel