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You've worked out a line of credit arrangement that allows you to borrow up to $ 50 million at any time. The interest rate is .72 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?

(b) suppose you need $ 15 million today and you repay it in six months. How much interest will you pay?

 

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