Calculate effective annual interest rate

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Reference no: EM1365153

You've worked out a line of credit arrangement that allows you to borrow up to $50 million at any time. The interest rate is .425 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans.
a. What is the effective annual interest rate on this lending arrangement?

b. Suppose you need $10 million today and you repay it in six months. How much interest will you pay?

Reference no: EM1365153

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