Question
In exchange for a $600 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 2 percent per quarter
In exchange for a $600 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 2 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 .19 percent of the amount of the line. Based on this information, answer the following:
1. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit?
2.Suppose your firm immediately uses $100 million of the line and pays it off in one year. What is the effective annual interest rate on this $100 million loan?
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