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Effective annual interest rate-funds actually borrowed

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Reference no: EM131014462

In exchange for a $460 million fixed commitment line of credit, your firm has agreed to do the following:

1. Pay 3.0 percent per quarter on any funds actually borrowed.

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

3. Pay an up-front commitment fee of 0.160 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 round your answer to 2 decimal places. (e.g., 32.16))

Effective annual interest rate ? %

b. Suppose your firm immediately uses $200 million of the line and pays it off in one year. What is the effective annual interest rate on this $200 million loan? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Effective annual interest rate ? %

Reference no: EM131014462

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