Note that the loan from the affiliate was a 26% annual percentage rate percentage rate for a three-month loan (the bank would charge exactly 6.5% on a three-month loan, to be paid when the principal was repaid). The effective rate over three months was, therefore, 6.5%. The 8.52% rate for Baker’s line of credit was an annual percentage rate based on monthly compounding. The effective monthly rate was, therefore, 8.52%/ 12 =0.71%, which implies a (1.0071) – 1 =2.1452% effective rate over three months.