You plan to borrow $20,000 from the bank to pay for inventories for a gift shop you have just opened. The bank offers to lend you the money at 8 percent annual interest for the 3 months the funds will be needed(assume a360-day year).

a.Calculate the annualized rate of interest on the loan.

b.Inaddition, the bank requires you to maintain a 15 percent compensating balance in the bank. Because you are just opening yourbusiness, you do not have a demand deposit account at the bank that can be used to meet thecompensating-balance requirement. This means that you will have to put 15 percent of the loan amount(which you had planned to use to help finance thebusiness) in a checking account. What is the cost of the loannow?

c.In addition to thecompensating-balance requirement in part b, you are told that interest will be discounted. What is the annualized rate of interest on the loannow?

The effective rate ofinterest, or APR, on the loan is ___ %