California State Bank has agreed to lend you $5,000 for 1 year at a stated annual interest rate of 5%, with interest prepaid (this is a discounted loan). The bank is also requiring you to maintain a compensating balance equal to 15% of the initial loan value.
1-How much do you need to actually borrow from the bank to have $5,000 of usable funds?
2-What is the effective annual interest rate that you are being charged by the bank?