q-20

Section B 20 (a) Your company has a line ofcredit through a local bank. The bank requires a 6% compensating balance and charges 12% on the amount borrowed against the line. If the comp calculate the effective annual rate on the loan. You've worked out a line of credit arrangement that allows you to borrow up to $100 million at any time. The interest rate is 0.4 percent per month. In addition, 5% of the amount that you borrow must be deposited in a non-interest bearing account (i.e. a compensating balance). Assume that your bank uses compound interest on its line of credit loans. What is the effective annual rate (EAR) on the loan? What is the APR on the loan? Which rate would the bank advertise- the any needs $100,000 to purchase inventory, find the amount it should borrow,and (b) APR or the EAR? 21. Use the following financial statement information: Item Inventory Beginning $1,500 2.,300 Ending $1.800 2.600 1.100