Midland chemical co is negotiating a loan from manhattan bank and trust. the small chemical company needs to borrow $500000. the bank offers a rate of 8 1/4 percecn with a 20% compensating balance requirement or as an alternative 9 3/4% with additional fee of $5500 to cover services the bank is providing. the rate on the loan is floating and the loan would be for one year.
a. which loan carries the lower effective rate
b. if the loan with a 20% conpensating balance requriement were to be paid off in 12 monthly payments, what would the effective rate be.