1. A firm pays a stated interest rate of 8.5% on a $550,000 loan for one year. They are also required to keep a 15% compensating balance. The firm normally keeps an $85,000 balance in their checking account. Calculate the effective interest rate.
2. Four years ago, you purchased a convertible bond at par with a ten year maturity with an 8% coupon. The conversion ratio of the bond is 25. The current market price of the stock is $50. Calculate the conversion value.