Your bank offers you a $140,000 line of credit with an interest rate of 2.30 percent per quarter. The loan agreement also requires that 7 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Your short-term investments are paying 1.55 percent per quarter. 1. What is a compensating balance? Why is it necessary? 2. What is your effective annual interest rate if you borrow the whole $140,000 for the entire year? 3. What will be the carrying cost in this problem? 4. What will be the shortage cost in this problem?