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Q.2. Texas Petroleum Company negotiated a revolving credit agreement for $100,000,000 @ 11% with a group of banks. The banks were formally committed for four
Q.2. Texas Petroleum Company negotiated a revolving credit agreement for $100,000,000 @ 11% with a group of banks. The banks were formally committed for four years to lend the firm up to $100 million if the funds were needed. Texas Petroleum, in turn, paid an annual commitment fee of 1/2 of 1 percent on the unused balance of the commitment to compensate the banks for making the commitment. (1) Calculate the annual fee paid by the company if nothing was used in first year (ii) Calculate the effective rate of interest if $30,000,000 were used next year (iii) Calculate the effective rate of interest if additional $25,000,000 were used in next year. (iv) Calculate the effective rate of interest if the whole amount of Revolving credit agreement Utilized
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