XYZ Company has $967,000 in paid-in capital, retained earnings of $57,950 (including the current years earnings), and 30,500 shares of common stock outstanding. In the current year, it has $34,000 of earnings available for the common stockholders. XYZ is a single product company, selling 250,000 products per year. Each product has a variable operating cost of $3.75 and sells for $4.15. Fixed operating costs are $66,000. XYZ turns over its inventory six times each year, has an average payment period of 65 days, and has an average collection period of 40 days.

d.XYZ Company has borrowed $100,000 under a line-of-credit agreement. While the XYZ normally maintains a checking account balance of $18,000 in the lending bank, this credit line requires a 25% compensating balance. The stated interest rate on the borrowed funds is 12%. What is the effective annual rate of interest on the line of credit?