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In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 1.6 percent per quarter
In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do the following: | |
1. | Pay 1.6 percent per quarter on any funds actually borrowed. |
2. | Maintain a 5 percent compensating balance on any funds actually borrowed. |
3. | Pay an up-front commitment fee of .30 percent of the amount of the line. |
Required: | |
Based on this information, answer the following: | |
(a) | Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Effective annual rate | % |
(b) | Suppose your firm immediately uses $210 million of the line and pays it off in one year. What is the effective annual interest rate on this $210 million loan? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
Effective annual rate | % |
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