Effective annual interest rate on arrangement

Assignment Help Financial Management

Reference no: EM132033594

1. Your bank offers you a $40,000 line of credit with an interest rate of 2.5 percent per quarter. The loan agreement also requires that 4 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 1.50 percent per month. What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume any funds borrowed or invested use compound interest.

2. You need to have $25,756 available at the end of 8 years. How much to do you have invest each year, starting at the end of this year, for 8 years to achieve this goal? (Enter your answer as a positive number rounded to 2 decimal places.)

Reference no: EM132033594

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