Computing effective rate of interest

Reference no: EM1366653

Tucker Drilling Corporation wants to borrow $200,000. Northern National Bank will lend the money at one-half percentage point over the prime rate of 8 1/2% (9 percent total) & requires a compensating balance of 20%. Principal in this case refers to funds that the firm can effectively use in the business.

What is the effective rate of interest? What would the effective rate be if Tucker Drilling were required to make four quarterly payments to retire the loan?

Reference no: EM1366653

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