In exchange for a $750 million fixed commitment line of credit, your firm has agreed to do the following:

1. Pay 1.8 percent per quarter on any funds actually borrowed

2. Maintain a 5 percent compensating balance on any funds actually borrowed

3. Pay an up-front commitment fee of .105 percent of the amount of the line Based on this information, answer the following:

a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit?

b. Suppose your firm immediately uses $550 million of the line and pays it off in one year. What is the effective annual interest rate on this $550 million loan?