Question

You’ve worked out a line of credit arrangement that allows you to borrow up to $40 million at any time. The interest rate is .36 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans.

a. What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. Suppose you need $13 million today and you repay it in six months. How much interest will you pay? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer #1

You’ve worked out a line of credit arrangement that
allows you to borrow up to $10,000 at any time. The interest rate
is 0.75% per month. In addition, 2% of the amount that you borrow
must be deposited in a noninterest-bearing account.
a) What is the Effective Annual Rate on this lending
arrangement?
b) Suppose you need $8,000 today and you repay it in 9
months. How much interest
will you pay?

A bank offers your firm a revolving credit arrangement for up to
$50 million at an interest rate of 1.25 percent per quarter. The
bank also requires you to maintain a compensating balance of 3
percent against the unused portion of the credit line, to
be deposited in a noninterest-bearing account. Assume you have a
short-term investment account at the bank that pays .60 percent per
quarter, and assume that the bank uses compound interest on its
revolving credit loans....

The York Company has arranged a line of credit that allows it to
borrow up to $52 million at any time. The interest rate is .628
percent per month. Additionally, the company must deposit 6 percent
of the amount borrowed in a non-interest bearing account. The bank
uses compound interest on its line-of-credit loans. What is the
effective annual rate on this line of credit?

Cheap Money Bank offers your firm a discount interest
loan at 5 percent for up to $18 million and, in addition, requires
you to maintain a 2 percent compensating balance against the amount
borrowed.
What is the effective annual interest rate on this lending
arrangement? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following: Pay 1.84 percent per
quarter on any funds actually borrowed. Maintain a 2 percent
compensating balance on any funds actually borrowed. Pay an
up-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 annual interest rate on this line of credit? (Do not...

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following:
Pay 1.7 percent per quarter on any funds actually
borrowed.
Maintain a 2 percent compensating balance on any funds actually
borrowed.
Pay an up-front commitment fee of 0.21 percent of the amount of
the line.
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...

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following:
Pay 1.97 percent per quarter on any funds actually
borrowed.
Maintain a 1 percent compensating balance on any funds actually
borrowed.
Pay an up-front commitment fee of 0.23 percent of the amount of
the line.
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...

In exchange for a $400 million fixed commitment line of credit,
your firm has agreed to do the following:
Pay 1.88 percent per quarter on any funds actually
borrowed.
Maintain a 3 percent compensating balance on any funds actually
borrowed.
Pay an up-front commitment fee of 0.22 percent of the amount of
the line.
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...

You have just purchased a new warehouse. To finance the
purchase, you’ve arranged for a 25-year mortgage loan for 75
percent of the $2,700,000 purchase price. The monthly payment on
this loan will be $16,800. a. What is the APR on this loan? (Do not
round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.) b. What is the EAR on
this loan? (Do not round intermediate calculations. Enter your
answer as a percent...

A local finance company quotes an interest rate of 18.1 percent
on one-year loans. So, if you borrow $39,000, the interest for the
year will be $7,059. Because you must repay a total of $46,059 in
one year, the finance company requires you to pay $46,059/12, or
$3,838.25 per month over the next 12 months.
What rate would legally have to be quoted? (Do not round
intermediate calculations and enter your answer as a percent
rounded to 2 decimal places,...

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