The Only National Bank of Summit County has given you a line of credit of

$5,000.Interest on the borrowed amount is 8% per year.You must maintain a 10% compensating balance on outstanding loans and pay a commitment fee (paid at the end of the period) of 1% of the unused portion of the credit line.

a.Calculate the AFC if the amount borrowed is $4,000 for 6 months.

b.Calculate the AFC if the amount borrowed for 6 months is the full credit limit of $5,000.

c.You plan on borrowing $4,000 (as in Part a), but you want the AFC to be what is in Part b.All other things equal, what must be the new value for the stated interest rate?

Answer rating: 100% (QA)

Answer To solve this problem we need to calculate the Annualized Financing Cost AFC for the given scenarios Given information Line of credit 5000 Inte... View the full answer