In exchange for a $400 million fixed commitment line of credit, your firm has agreed to...

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Finance

In exchange for a $400 million fixed commitment line of credit,your firm has agreed to do the following: Pay 1.84 percent perquarter on any funds actually borrowed. Maintain a 2 percentcompensating balance on any funds actually borrowed. Pay anup-front commitment fee of 0.29 percent of the amount of the line.Based on this information, answer the following:
a. Ignoring the commitment fee, what is the effective annualinterest rate on this line of credit? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)
Effective annual rate %
b. Suppose your firm immediately uses $214 million of the lineand pays it off in one year. What is the effective annual interestrate on this $214 million loan? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)
Effective annual rate %

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3.9 Ratings (565 Votes)

a Assumed all funds borrowed There are two solutions of the question If Effective Rate of Interest is compounded Annual Rate of Interest 1rn1 1001844 1 00757 757 See Answer

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In exchange for a $400 million fixed commitment line of credit,your firm has agreed to do the following: Pay 1.84 percent perquarter on any funds actually borrowed. Maintain a 2 percentcompensating balance on any funds actually borrowed. Pay anup-front commitment fee of 0.29 percent of the amount of the line.Based on this information, answer the following:a. Ignoring the commitment fee, what is the effective annualinterest rate on this line of credit? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)Effective annual rate %b. Suppose your firm immediately uses $214 million of the lineand pays it off in one year. What is the effective annual interestrate on this $214 million loan? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2decimal places, e.g., 32.16.)Effective annual rate %