A commercial bank offers you a $200,000 annual line of credit with the following terms: origination

Question:

A commercial bank offers you a $200,000 annual 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?
Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...