Question: Company X has a line of credit at Bank A that requires it to pay 11% interest on its borrowing and to maintain a compensating balance equal to 15% of the amount borrowed. The company has borrowed $800,000 during the year under the agreement. Calculate the effective annual rate on the company's borrowing in each of the following circumstances:
a) The company normally maintains no deposit balances at Bank A.
b) The company normally maintains $70,000 in deposit balances at Bank A.
c) The company normally maintains $150,000 in deposit balances at Bank A.
d) Compare, contrast, and discuss your findings in parts a, b, and c.