Question

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 round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
**

Effective annual rate 7.91 %

Effective annual rate % (THE ANSWER IS NOT 8.01)

Answer #1

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 1.84 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 $500
million fixed commitment line of credit, your firm has agreed to do
the following:
1. Pay 2.0% per
quarter on any funds actually borrowed.
2. Maintain a 4%
compensating balance on any funds actually borrowed.
3. Pay an up-front
commitment fee of 0.200% 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...

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....

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...

Come and Go Bank offers your firm a discount interest
loan with an interest rate of 8 percent for up to $17 million, and
in addition requires you to maintain a 4 percent compensating
balance against the face 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.)
Effective annual rate

Fernandez has applied for a revolving credit line of $ 9 million
to assist in marketing a new product line. The terms of the loan
will be as follows:
(a) All the loans will be discount loans.
(b) A commitment fee of 0.1 percent on the unused portion of the
loan will be charged.
(c) The compensatory balance requirements will be 3 percent on
the total credit line and 2 percent on the outstanding loans.
(d) The bank will pay...

A firm offers terms of 1/10, net 35.
a. What effective annual interest rate does the firm earn when a
customer does not take the discount? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
b. What effective annual interest rate does the firm earn if the
discount is changed to 2 percent? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2
decimal places,...

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.)

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