What is effective annual rate

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Reference no: EM132053109

A firm has a $500,000 line of credit with a 4.0% compensating balance requirement. The quoted rate on the line is prime +3.5%, and the prime rate is currently 2.4%. What is the effective annual rate (EAR)? Note: You don't need to know how much the firm borrows, the EAR will be the same for all borrowings $200,000 or less. However for convenience in calculations, you may assume that the firm borrows $100,000. Express your answer as a percentage.

Reference no: EM132053109

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