Question
In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: Pay 1.87 percent per quarter on
In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following:
Pay 1.87 percent per quarter on any funds actually borrowed.
Maintain a 1 percent compensating balance on any funds actually borrowed.
Pay an up-front commitment fee of .23 percent of the amount of the line.
Based on this information, answer the following:
Ignoring the commitment fee, what is the effective annual interest rate on this line of credit?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Suppose your firm immediately uses $217 million of the line and pays it off in one year. What is the effective annual interest rate on this $217 million loan?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
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