KKP Corporation has a $750,000 line of credit with the Bank of the Philippine Islands (BPI) and
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Question:
KKP Corporation has a $750,000 line of credit with the Bank of the Philippine Islands (BPI) and the interest is set at 4.5% over prime. The firm is required to maintain a 25 percent compensating balance throughout the year and the prime rate is currently 2.5%. Round the cost of credit to two decimal places.
- If KKP already has at least $150,000 maintaining balance in its BPI checking account, what is the annualized cost of credit through the line-of-credit agreement when the maximum loan amount is used for 9 months?
- What is the annualized cost of credit if KKP needs to borrow the compensating balance on top of the maximum line of credit under a new loan agreement for 9 months?
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