Tuckahoe Hospital wishes to establish a line of credit with a bank. FIRST Bank terms call for a $500,000 maximum loan with an interest rate of 4% and a $2,000 fee. SECOND Bank terms call for a...

Tuckahoe Hospital wishes to establish a line of credit with a bank.  FIRST Bank terms call for a $500,000 maximum loan with an interest rate of 4% and a $2,000 fee.  SECOND Bank terms call for a $500,000 maximum loan with an interest rate of 5% but no fee.  The compensating balance requirement is 5% of the total line of credit for either bank.

1. What is the effective interest rate for Tuckahoe Hospital from FIRST Bank if 50% of the total amount were used during the year?


2. What is the effective interest rate for Tuckahoe Hospital from FIRST Bank is 25% of the total amount were used during the year?


3. What is the effective interest rate for Tuckahoe Hospital from SECOND Bank if 50% of the total amount were used during the year?


4. What is the effective interest rate for Tuckahoe Hospital from SECOND Bank if 25% of the total amount were used during the year?


5. Which bank would be the better choice for Tuckahoe Hospital?  You will enter FIRST or SECOND as your answer.