Your bank offers you a $140,000 line of credit with an interest rate of 2.30 percent per

Question:

Your bank offers you a $140,000 with an interest rate of 2.30 percent per quarter. The loan agreement also requires that 7 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 1.55 percent per quarter.
What is your effective annual interest rate if you borrow the whole $140,000 for the entire year?
What will be the carrying cost in this problem?
What will be the shortage cost in this problem?
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...