Calculating effective rate on the dollar actually used, Finance Basics

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Calculating effective rate on the dollar actually used

Problem:

Computer Graphics Company needs $250,000 in funds for a project.

a. With a compensating balance requirement of 20 percent, how much will the firm need to borrow?

b. Given your answer to part a and a stated interest rate of 10 percent on the total amount borrowed, what is the effective rate on the $250,000 actually being used?

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