Problem:

A firm borrowed $1,500,000 from National Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate.

Required:

Question 1: The nominal annual rate of the loan was 11.25%. What is the true effective rate?

Question 2: What would be the effective cost of the loan if the note required discount interest?

Question 3: What would be the nominal annual interest rate on the loan if the bank did not require a compensating balance but required repayment in 3 equal monthly installments?

Describe in detail and provide all workings and methods.