Problem:

On January 2, 20X1, City Hospital established a line of credit with First Union National Bank. The terms of the line of credit called for a $200,000 maximum loan with an interest of 11 percent. Then compensating balance requirement is 15 percent of the total line of credit (with no additional fees charged).

Required:

Question 1: What is the effective interest rate for City Hospital if 50 percent of the total amount were used during the year?

Question 2: How would the answer to part of a change if the additional fees were $500?

Question 3: How would the answer to part of a change if the additional fees were $1,000?

Note: Show all workings.