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Annualized cost of credit through line-of-credit agreement

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Question 1. KKP Corporation has a $750,000 line of credit with the Bank of the Philippine Islands (BPI) and the interest is set at 4.5% over prime. The firm is required to maintain a 25 percent compensating balance throughout the year and the prime rate is currently 2.5%. Round the cost of credit to two decimal places.

Question 2. If KKP already has at least $150,000 maintaining balance in its BPI checking account, what is the annualized cost of credit through the line-of-credit agreement when the maximum loan amount is used for 9 months?

Question 3. What is the annualized cost of credit if KKP needs to borrow the compensating balance on top of the maximum line of credit under a new loan agreement for 9 months?

Reference no: EM133227614

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