Question
Golden Foods, Inc. has a revolving credit agreement with its bank under which it can borrow up to $10 million at an annual interest rate
Golden Foods, Inc. has a revolving credit agreement with its bank under which it can borrow up to $10 million at an annual interest rate of 10%. The firm is required to maintain a 20% compensating balance on any funds borrowed under this agreement and to pay a 1% commitment fee on the unused portion of the credit line. (Assume Golden has no existing funds on deposit with the bank.) Determine the EAR assuming an average of $6 million is outstanding on the credit line during the year.
Group of answer choices
13.3%
10.7%
10.0%
12.5%
Please solve the question correctly.
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