Ricco Company negotiated a line of credit with the Bank of Montreal that began on January 1, 2019. After a thorough analysis of Riccos operations, an interest rate of prime plus 3.0% was agreed to. The prime rate is currently 4.0% per annum. Interest payments are due at the end of each month and include a commitment fee of 0.75% and a compensating balance requirement of 10%. Loan activity during the month of January was as follows: January 1 13 CAD 30,000 January 14 31 CAD 45,000 The loan has a limit of CAD 200,000 and must be secured by inventory and accounts receivable, which the bank reviews at the end of each month. For collateral purposes, the inventory is valued at 50% of its book value and the accounts receivable at 75%. At the end of January 2019, Ricco had CAD 75,500 in inventory and CAD 100,000 in accounts receivable. The effective interest rate for January expressed on an annual basis is closet to