1. Your boss secured a $40 million line of credit for the business. The interest rate is .615% per month. In addition, 5% of the amount you borrow must be deposited in a non-interest bearing account. Assume that the bank compounds the interest on the line.

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

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

2. Bobs Hobby has annual average purchases of $138,000 and an ending accounts payable balance of $21,748. How long, on average, does it take Bobs to pay for its purchases?