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A bank offers your firm a revolving credit arrangement for up to $70 million at an interest rate of 1.75 percent per quarter. The bank
A bank offers your firm a revolving credit arrangement for up to $70 million at an interest rate of 1.75 percent per quarter. The bank also requires you to maintain a compensating balance of 5 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.10 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. |
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