Ms. R. Goslin has applied for a revolving credit line of $ 87,142,000 to assist in marketing a new product line. The terms of the loan will be as follows:

a) All the loans will be discount loans

b) A commitment fee of 0.4 percent on the unused portion of the loan will be charged.

c) The compensatory balance requirements will be 5 percent on the outstanding loans and there will be none on the total line of credit

d) The rate of interest to be charged will be the prime rate plus 4%

e) The bank will pay 3% interest on the demand deposits

f) The credit line will be extended for a period of 5 years.

The loan officer estimates that Ms. R. Goslin will use about 27% of the credit line on average. If the prime rate is 8 percent and the required reserve rate on demand deposits is 14 percent. Compute the effective yield for the bank.

a) 15.68%

b) 15.89%

c) 16.09%

d) 16.29%