A commercial bank offers you a 200 000 annual line of
A commercial bank offers you a $200,000 annual line of credit with the following terms:
• origination fee: $2,000 paid when the line is accepted
• fees: 1 percent on unused balance, paid at the end of the year
• interest rate: 9 percent What is the effective cost of the loan
a. if you expect to borrow the entire $200,000 for the year?
b. if you expect to borrow the $200,000 for only three months?
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