Effective annual interest rate on this line of credit

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Reference no: EM131980854

In exchange for a $580 million fixed commitment line of credit, your firm has agreed to do the following:

1. Pay 2 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 .17 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 $250 million of the line and pays it off in one year. What is the effective annual interest rate on this $250 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 %

Reference no: EM131980854

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