NOTE FOR QUESTION 9: In a discount interest loan, the interest is deducted from the amount...

NOTE FOR QUESTION 9: In a discount interest loan, the interest is deducted from the amount the borrower receives at the beginning of the loan. For example, if a bank makes a one-year loan of $10,000 at a simple interest rate of 5%, the borrower essentially borrows $9,500 at the beginning of the year and repays it with no interest at the end of the year.

9.A bank offers your firm a discount interest loan at 8.25 percent for up to $25 million and, in addition, it requires your firm to maintain a 5 percent compensating balance against the amount borrowed. What is the effective annual interest rate on this lending arrangement? (SHOW YOUR WORK)

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