Reference no: EM131611246
In exchange for a $570 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 1 percent per quarter on any funds actually borrowed.
2. Maintain a 3 percent compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of .16 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 $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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Effective annual interest rate %