University is in th process of negotiating a line of credit with two local banks. The prime rate is currently 3%.

The terms follow: 1st National--- 1% above prime rate on a discounted basis and a 20% compensating balance on the face value of the loan.

2nd National---2% above prime rate and a 15% compensating balance.

(a) Calculate the effective interest rate of both banks (b) Recommend which bank's line of credit the University should accpet.