A bank offers your firm a revolving credit arrangement for up to $74 million at an interest rate of 1.35 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a noninterest-bearing account. Assume you have a short-term investment account at the bank that pays .76 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans.

Required:

(a)

What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year?

Effective annual rate:

(b)

What is your effective annual interest rate on the lending arrangement if you borrow $41 million immediately and repay it in one year?

Effective annual rate:

(c)	What is your effective annual interest rate if you borrow $74 million immediately and repay it in one year? Effective annual rate: