Youve worked out a line of credit arrangement that allows you to borrow up to $50 million
Question:
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 .37 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?
Step by Step Answer:
a we have EAR 1it 1 1 compensating balance EAR 10003712 1 ...View the full answer
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Related Video
Interest, debt, finance, and capital markets are all important concepts in the world of economics and business. Interest is the cost of borrowing money, and it is typically expressed as a percentage of the amount borrowed. Debt is the money that is borrowed, and it has to be repaid with interest. Finance is the study of how individuals, companies, and organizations manage their money and investments. Capital markets are the places where companies and governments can raise money by selling stocks and bonds to investors. These markets play an important role in the overall economy by helping to fund investment and growth.
Students also viewed these Business questions
-
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 .64 percent per month. In addition, 5 percent of the amount that you...
-
Costs of borrowing youve 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...
-
In Minland in Problem 15, the interest rate is 4 percent a year. Suppose that real GDP decreases to $10 billion and the quantity of money supplied remains unchanged. Do people buy bonds or sell...
-
Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through...
-
For each of the following salts, indicate whether the aqueous solution will be acidic, basic, or neutral. a. Fe(NO3)3 b. Na2CO3 c. Ca(CN)2 d. NH4ClO4
-
You are now conducting your third annual audit of the financial statement of Elite Corporation for the year ended December 31, 19X1. You decide to employ unrestricted random number statistical...
-
For the dissolution of platelets in dilute solution with independent dissolution mass transfer coefficients for the flat and growth sides, a. Show that \[ \begin{aligned} & h=-2 k_{\text {flat }}...
-
Here are incomplete financial statements for Liam, Inc. InstructionsCalculate the missing amounts. LIAM, INC. Balance Sheet Liabilities and Stockholders' Equity Assets $ 7,000 10,000 45,000 Cash...
-
What is the treatment of gains or losses arising from changes in fair value of investment property under IFRS? a. Recognised in the Statement of Financial Position b. Recognised in the Statement of...
-
Failure to follow accounting principles causes immense confusion, which in turn creates a number of problems for the organization. Those with vast experience in bookkeeping, however, are able to...
-
Below are the most recent balance sheets for Country Kettles, Inc. Excluding accumulated depreciation, determine whether each item is a source or a use of cash and the amount: COUNTRY KETTLES, INC....
-
A bank offers your firm a revolving credit arrangement for up to $75 million at an interest rate of 1.75 percent per quarter. The bank also requires you to maintain a compensating balance of 5...
-
Suppose the initial temperature of the block is to be increased enough to make the final temperature of the system equal to 22.5 C. What is the required initial temperature? Everything else remains...
-
a . If the town decided to use Lindahl pricing ( a tax based on a Lindahl equilibrium ) to collect enough money to provide the socially efficient quantity of acres, what would be each person s tax...
-
Answer the following questions about the forces in the nucleus. 1. What are the two forces in the nucleus? 2. Which one brings stability to the nucleus? 3. Which one brings instability to the...
-
1. Explain and discuss the advantages of nuclear energy technology, considering both fission and fusion. 2. Explain and discuss the disadvantages of nuclear energy technology, considering both...
-
Figure (a) shows, in cross section, two long, parallel wires carrying current and separated by distance L. The ratio i/i2 of their currents is 5.60; the directions of the currents are not indicated....
-
4. The membrane that surrounds a certain type of living cell has a surface area of 5.20 x 10-9 m2 and a thickness of 1.50 x 10-8 m. Assume that the membrane behaves like a parallel plate capacitor...
-
Describe the easiest way to find state tax law data in Westlaw Campus Research.
-
Four GWU students have been selected to taste food sold by 3 different food trucks labeled as food truck A, B and C on H & 22nd Streets every Monday for 3-weeks. For each student, food trucks are...
-
First Simple Bank pays 7.5 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to...
-
You've just joined the investment banking firm of Dewey, Cheatum, and Howe. They've offered you two different salary arrangements. You can have $75,000 per year for the next two years, or you can...
-
You have just won the lottery and will receive $1,500,000 in one year. You will receive payments for 30 years, and the payments will increase by 2.5 percent per year. If the appropriate discount rate...
-
RiverRocks (whose WACC is 12.2%) is considering an acquisition of Raft Adventures (whose WACC is 14.3%). The purchase will cost $102.1 million and will generate cash flows that start at $14.6 million...
-
The stock price of Heavy Metal (HM) changes only once a month: either it goes up by 24% or it falls by 20.7%. Its price now is $48. The interest rate is 1.2% per month. a. What is the value of a...
-
Assume the returns from holding an asset are normally distributed. Also assume the average annual return for holding the asset a period of time was 15.6 percent and the standard deviation of this...
Study smarter with the SolutionInn App