Your firms bank has offered you two options for short-term financing in the amount of $450,000. The
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Your firm’s bank has offered you two options for short-term financing in the amount of $450,000. The first option is a committed line of credit with a commitment fee of 0.4% (EAR) and an interest rate of 10% (APR, compounded quarterly). The second option is a loan with a 7% compensating balance and an interest rate of 9.5% (APR, compounded quarterly). If you need $418,500 in financing at the beginning of the year and plan to pay it back at the end of the year, which option has a lower effective annual rate of interest?
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Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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