Problem: Your firm is considering the following three alternative bank loans for $1,000,000:
a) 10% loan paid at year end with no compensating balance
b) 9% loan paid at year end with a 20% compensating balance
c) 6% loan that is discounted with a 20% compensating balance requirement
Assume that you would normally not carry any bank balance that would meet the 20% compensating balance requirement. What is the rate of annual interest on each loan?