A bank offers your firm a revolving credit arrangement for up to $$110$ milion at on interest rate of $22$ pencent per quarter. The bank also requires you to maintain a compensating balance of $4$ percent against the unused portion of the credit line, to be deposited in a non$-$interest$-$bearing occount. Assume you hove o short$-$term investment account at the bonk that pays $1\mathrm{.}5$ percent per quarter, and ossume that the bank uses compound interest on its revolving credit loans.

a$.$ What is your effective annual interest rate $($an opportunity cost$)$ on the revolving credit orrongement if your firm does not use it during the yeor?

Effective annusl interest rate

b$.$ What is your effective onnual interest rate on the lending orrongement if you borrow $$1$ million immediately and repoy it in one year?

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c$.$ What is your effective onnual interest rate if you borrow $$110$ million immediately and repay it in one yeor?

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