Question
8. A company is offered a $20 million line of credit with a monthly interest rate of 0.5% on any funds actually borrowed. The company
8. A company is offered a $20 million line of credit with a monthly interest rate of 0.5% on any funds actually borrowed. The company would also be required to maintain a 5% compensating balance on any funds actually borrowed. Assume the company immediately uses the line of credit to fund a project costing $5 million and repays the full amount in one year. What would be the effective annual interest rate on this loan?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the effective annual interest rate on the loan we need to consider both the monthly int...
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Step: 2
Step: 3
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
Concise 6th Edition
324664559, 978-0324664553
