he Sports Store has a $100,000 line of credit with City Bank.

he Sports Store has a $100,000 line of credit with City Bank. The loan agreement requires that 2 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. The interest rate on the borrowed funds is 1.75 percent per quarter. The Sport Store’s short-term investments are paying 1.5 percent per quarter. What is the effective annual interest rate on the line of credit if The Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or invested use compound interest.

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