Answer:- Calculation of effective interest rate on the loan :-
Amount to be borrowed = $63,000
Stated annual interest rate = 10%
Compensating Balance = 10%
Amount deposited as compensating balance = 63,000*10% = $6,300
Effective borrowing amount = $63,000 - $6,300 = $56,700
Interest Expense = $63,000 *10% = $6,300
Effective Interest Rate = $6,300 / $56,700 = 11.11%
So the correct answer is option A.( 11.11%)
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