(Solved by Humans)-Problem 16-17 Costs of Borrowing [LO3] In exchange for a $400 million fixed commitment line of credi
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Problem 16-17 Costs of Borrowing [LO3] In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 1.95 percent per quarter on any funds actually borrowed. 2. Maintain a 4 percent compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of 0.3 percent of the amount of the line. Required: Based on this information, answer the following: (a) Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Effective annual rate % (b) Suppose your firm immediately uses $225 million of the line and pays it off in one year. What is the effective annual interest rate on this $225 million loan? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Effective annual rate %
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This question was answered on: 10 May, 2025
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