Question
In exchange for a $500,000 fixed commitment line of credit, a firm has agreed to do the following: 1. Pay 1% per month on any
In exchange for a $500,000 fixed commitment line of credit, a firm has agreed to do the following:
1. Pay 1% per month on any funds actually borrowed.
2. Maintain a 5% compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of 0.25% of the amount of the line.
a. Ignoring the commitment fee, what is the EAR on this line of credit.
b. Assume the firm immediately borrows $100,000 from the line to use for one year. What is the EAR on this $100,000?
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Intermediate Accounting
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
9th Canadian Edition, Volume 2
470964731, 978-0470964736, 978-0470161012
