1. 13.

Costs of borrowing [LO 18.3] You have worked out a line of credit arrangement that allows you to borrow up to $40 million at any time.

The interest rate is 0.36 per cent per month. In addition, 4 per cent of the amount that you borrow must be deposited in a non-interestbearing account. Assume that your bank uses compound interest on its line of credit loans.

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

2. Suppose you need $13 million today and you repay it in six months. How much interest will you pay?