Problemyouve worked out a line of credit arrangement that, Ask an Expert

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Problem:

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 0.52 percent per month. In addition, 6 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.

Required:

Question 1: What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Question 2: Suppose you need $22 million today and you repay it in 6 months. How much interest will you pay?

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167063

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