In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following:
Pay 1.91 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 0.26 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 $221 million of the line and pays it off in one year. What is the effective annual interest rate on this $221 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 %