Reference no: EM131861583
In exchange for a $600 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 2 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 .190 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. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Effective annual interest rate %
b. Suppose your firm immediately uses $100 million of the line and pays it off in one year. What is the effective annual interest rate on this $100 million loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Effective annual interest rate %
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