Question
A firm has a $200,000 line of credit with a 4% compensating balance requirement. The quoted rate on the line is prime +5%, and the
A firm has a $200,000 line of credit with a 4% compensating balance requirement. The quoted rate on the line is prime +5%, and the prime rate is currently 2.5%. What is the effective annual rate (EAR)?
Note: You don't need to know how much the firm borrows, the EAR will be the same for all borrowings $200,000 or less. However for convenience in calculations, you may assume that the firm borrows $100,000.
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Multinational Management
Authors: John B. Cullen
6th edition
1285094946, 1285094948, 9781285696744 , 978-1285094946
