Costs of borrowing youve worked out a line of credit arrangement that allows you to borrow up

Question:

Costs of borrowing you’ve worked out a line of credit arrangement that allows you to borrow up to $50 million at any time. The interest rate is .72 percent per month. In addition, 4 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans.

a. What is the effective annual interest rate on this lending arrangement?

b. Suppose you need $15 million today and you repay it in six months. How much interest will you pay?

Compound Interest
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. Thought to have originated in 17th century Italy, compound... Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...