What is the effective annual interest rate on line of credit

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Reference no: EM13947154

In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 1.87 percent per quarter on any funds actually borrowed. 2. Maintain a 1 percent compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of 0.23 percent of the amount of the line. Required: Based on this information, answer the following: (a) Ignoring the commitment fee, what is the effective annual interest rate on this line of credit?

Suppose your firm immediately uses $217 million of the line and pays it off in one year. What is the effective annual interest rate on this $217 million loan?

Reference no: EM13947154

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