In exchange for a $300 million fixed commitment line of credit, your firm has agreed to do
Question:
In exchange for a $300 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 1.95 percent per quarter on any funds actually borrowed.
2. Maintain a compensating balance of 5 percent on any funds actually borrowed.
3. Pay an up-front commitment fee of .195 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 $125 million of the line and pays it off in one year. What is the effective annual interest rate on this loan?
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a For every dollar borrowed you pay interest of Interest 10195 0195 You also must maintain a compens...View the full answer
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Related Book For 
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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