In exchange for a 400 million fixed commitment line of, Ask an Expert

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In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following:

Pay 1.86 percent per quarter on any funds actually borrowed.

Maintain a 5 percent compensating balance on any funds actually borrowed.

Pay an up-front commitment fee of 0.24 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 %

b. Suppose your firm immediately uses $216 million of the line and pays it off in one year. What is the effective annual interest rate on this $216 million loan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Effective annual rate %

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92712394

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