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Problem 1 6 - 1 3 Costs of Borrowing [ LO 3 ] You've worked out a line of credit arrangement that allows you to
Problem Costs of Borrowing LO
You've worked out a line of credit arrangement that allows you to borrow up to $ million at any time. The interest rate is percent per month. In addition, percent of the amount that you borrow must be deposited in a noninterestbearing account. Assume that your bank uses compound interest on its lineofcredit loans.
a What is the effective annual interest rate on this lending arrangement?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to decimal places, eg
b Suppose you need $ million today and you repay it in six months. How much interest will you pay?
Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to decimal places, eg
tablea Effective annual rate,,
You've worked out a line of credit arrangement that allows you to borrow up to $ million at any time. The interest rate is percent per month. In addition, percent of the amount that you borrow must be deposited in a noninterestbearing account. Assume that your bank uses compound interest on its lineofcredit loans.
a What is the effective annual interest rate on this lending arrangement?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to decimal places, eg
b Suppose you need $ million today and you repay it in six months. How much interest will you pay?
Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to decimal places, eg
a Effective annual rate
b Total interest paid
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