Find the effective interest rate for each loan

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Reference no: EM131354198

The treasurer of your company has instructed you to establish a $10,000,000 line of credit for your business. You have contacted three banks with the following loans available. The current prime rate is 6%.

Bank A: Prime + 1%, 15% compensating balances, commitment fee of 0.30% on the unused amount of the credit line.

Bank B: Prime + 0.5%, 20% compensating balance, commitment fee of 0.20% on the unused amount of the credit line.

Bank C: Prime + 1.5%, 10 % compensating balances, commitment fee of 0.05% on the unused amount of the credit line.

a) Find the effective interest rate for each loan.

b) Which loan should you choose and why?

Reference no: EM131354198

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