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Yourecentlyapproachedyourbankaboutestablishingacreditlinefacility.Thetermsofferedbyyourbankincludeanominalrateofprime+1.5%(primeiscurrently5%)ontheamountborrowed,acommitmentfeeof25basispointsontheunusedportionofthecreditline,andacompensatingbalanceof10%ontheamountborrowed. You decide to establish the line for $75 million. Over the course of a year, you anticipate the average amount borrowed to be $55
- Yourecentlyapproachedyourbankaboutestablishingacreditlinefacility.Thetermsofferedbyyourbankincludeanominalrateofprime+1.5%(primeiscurrently5%)ontheamountborrowed,acommitmentfeeof25basispointsontheunusedportionofthecreditline,andacompensatingbalanceof10%ontheamountborrowed.
- You decide to establish the line for $75 million. Over the course of a year, you anticipate the average amount borrowed to be $55 million. Your firm keeps no balances at the bank paying fees for all cash management services.
- Estimatethecostofcreditline.
- Assumethatthefirmdidhavecashbalancestocovertherequiredcompensatingbalancesresultingfromthecreditlineborrowings.Estimatetheeffectivecostofthecreditline.
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