Effective annual interest rate on the lending arrangement

Reference no: EM131941467

Question: A bank offers your firm a revolving credit arrangement for up to $68 million at an interest rate of 1.41 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a noninterest-bearing account. Assume you have a short-term investment account at the bank that pays .82 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans.

a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. What is your effective annual interest rate on the lending arrangement if you borrow $47 million immediately and repay it in one year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c. What is your effective annual interest rate if you borrow $68 million immediately and repay it in one year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Reference no: EM131941467

Questions Cloud

What is the duration of the bank commercial loan portfolio : A bank has two, 3-year commercial loans with a present value of $80 million. The first is a $30 million loan that requires a single payment of $37.8 million.

What is the average inventory : Given the EOQ, what is the average inventory? What is the annual inventory holding cost?

List the items on the banking systems balance sheet : The Fed makes an open market purchase of $15 of securities from the banks. List the items on the banking systems balance sheet before any lending takes place.

Individuals and communities are healthy : Making a healthy living as a default has been proposed as the best approach to ensure individuals and communities are healthy. Discuss

Effective annual interest rate on the lending arrangement : What is your effective annual interest rate on the lending arrangement if you borrow $47 million immediately and repay it in one year?

Identify two techniques or methods to collect data : Identify at least two techniques, sources of data, or methods to collect data for each level.

Now plans to enter consumer electronic : Need help on below assignment. Can you help. "Micromax Corporation a company assembling and Marketing Mobile phone, after successful

Which bank do you select to deposit your money : A bank is offering to pay compound interest of 5% per year on new CD accounts. An e-bank is offering 5.5% per simple interest on a 5-year Savings account.

What are present values of the costs of acquiring one atm : What are the present values of the costs of acquiring one ATM and of employing one teller? a- b- What are the equivalent annual costs of acquiring one ATM.

User Account

All Pages