Determine effective rate of interest

Reference no: EM1370460

A bank loan has a quoted annual rate of 6%. However, the borrower must maintain a balance of 25% of the amount of loan, and the balance does not earn any interest.

A. What is the effective rate of interest if the loan is for 1 year and is paid off in one payment at the end of the year?

B. What is the effective rate of interest if the loan is for 1 month?

Reference no: EM1370460

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