14. A bank offers your firm a line of credit of $50 million at rate of 1% per month, and also requires you maintain a compensating balance of 10% against the portion you actually borrowed to be deposited into a non interesting bearing account. Assume you can earn 1% per quarter on your short-term investment. The bank uses compound interest. What is your EAR if you borrow $20 million and repay in one year? A). 14.09 percent B). 14.68 percent C). 13.29 percent D). 5.16 percent E). None of the above a fixed rate of a variable rate any B prefers: B). C). D). E). 15. Company A can borrow money at a fixed rate of 7.5 percent or a variable rate set at prime plus 0.5 percent. Company B can borrow money at a variable rate of prime plus 1 percent or a fixed rate of 7 percent. Company A prefers a fixed rate and company B prefers a variable rate. Given this information, which one of the following statements is correct? A). Company A can swap with B and pay a fixed rate of 7.25 percent. If Company A swaps with B, Company A could pay a fixed rate of 6.5 percent. If Company B swaps with A, Company B must pay a fixed rate of 8 percent. Company B can swap with A such that Company B pays the variable prime rate. There are no terms under which both Company A and Company B can swap inter and both realize a profit. 16. A call option matures in nine months. The underlying stock price is $95, and return has a standard deviation of 19 percent per year. The risk-free rate is 3 percer mpounded continuously. The exercise price is $0. What is the price of the call 07