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What is the effective annual interest rate

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(a) Western Union has granted Encor Ltd., a line of credit that allows it to borrow up to $75 million at any time. The interest rate is 0.45% per month. But Encor Ltd. is required to have 4% of the borrowed amount deposited in a non-interest-bearing account. Assume the bank uses compound interest on its line of credit loans, what is the effective annual interest rate on this lending arrangement?

(b) Encor Ltd. uses 3,750 machine parts per week and then reorders another 3,750. If the relevant carrying cost per machine part is $14.25, and the fixed order cost is $1,135, what is the EOQ for Encor Ltd.? Explain your answer.

Reference no: EM133169568

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