Response to the following problem:
Determine the actual annual interest rate on a $40,000 line of credit with an annual percentage rate of 12% compounded monthly. The bank requires that a 10% compensating balance be placed in an interest-bearing account that pays an annual percentage rate of 1.25% compounded monthly. The average daily balance is anticipated to be $25,000, excluding the compensating balance and interest due on the line of credit.