What is the effective annual interest rate on line of credit

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Reference no: EM131918749

In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following:

1. Pay 1.6 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 .30 percent of the amount of the line.

Required:

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 percentage rounded to 2 decimal places (e.g., 32.16).)

Effective annual rate %

(b) Suppose your firm immediately uses $210 million of the line and pays it off in one year. What is the effective annual interest rate on this $210 million loan? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Effective annual rate %

Reference no: EM131918749

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