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Accounting

Problem:

Juno Industrial Supply has a $150,000 line of credit with a 6.5 percent interest rate. The loan agreement requires a 2 percent compensating balance, which is based on the total amount borrowed, and which will be held in an interest-free account.

Required:

Question: What is the effective interest rate if the firm borrows $91,800 on the line of credit for one year?

A. 6.42 percent

B. 6.47 percent

C. 6.50 percent

D. 6.58 percent

E. 6.63 percent

Note: Be sure to show how you arrived at your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91172020

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