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Which option has a lower effective annual rate of interest

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Reference no: EM132961964

Question - Your firm's bank has offered you two options for short-term financing in the amount of $400,000. The first option is a committed line of credit with a commitment fee of 0.5% (EAR) and an interest rate of 8% (APR, compounded quarterly). The second option is a loan with a 5% compensating balance and an interest rate of 7.6% (APR, compounded quarterly). If you need $380,000 in financing at the beginning of the year and plan to pay it back at the end of the year, which option has a lower effective annual rate of interest?

Reference no: EM132961964

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