Textbook Brokers has a committed credit line in the amount of $2,000,000. The interest rate on the credit line is 4%, the commitment fee is 0.125%, and the compensating balance is 10%. The treasurer of Textbook Brokers believes that the firm will require average daily borrowings of $1,200,000.

a.) To spend $1,200,000 from the line, how much must be drawn from the line?

b.) Suppose the Textbook Brokers borrows the amount calculated in part a. What will the annual interstate's expense and commitment fee be based on?

c.) Calculate the effective cost of the line