Hayley's Theatrical Supply is in the process of negotiating a line of credit with two local banks. The prime rate is currently 8 percent. The terms follow:

(a) Calculate the effective interest rate of both banks.
(b) Recommend which bank's line of credit Hayley's Theatrical Supply should accept.

(a) 1st National Bank effective interest rate = 11.25%
2nd National Bank effective interest rate = 11.76%
(b) Hayley's would choose the 1st National Bank since it has the lower effective interest rate (11.25 percent).