Effective annual interest rate on this line of credit

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Reference no: EM13805947

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

1) Pay 2.1 percent per quarter on any funds actually borrowed.

2) Maintain a 4 percent compensating balance on any funds actually borrowed.

3) Pay an up-front commitment fee of .150 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?

b) Suppose your firm immediately uses $130 million of the line and pays it off in one year. What is the effective annual interest rate on this $130 million loan?

Reference no: EM13805947

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