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Cost of Borrowing [LO3] You've worked out a line of credit arrangements that allow you to borrow up to $50 million at any time. The
Cost of Borrowing [LO3] You've worked out a line of credit arrangements that allow you to borrow up to $50 million at any time. The interest rate is 53 percent per month. Also, 5 percent of the amount that you borrow must be deposited in a non-interests-bearing account.Assume that your bank uses compound interest on its line of credit loans. a. What is the effective annual interest rate on this lending arrangement? b. Suppose you need $15 million today and you repay it in six months. How much interest will you pay?
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