Lansdowne Electronics has a formal line of credit of $1 million for up to three years with

Question:

Lansdowne Electronics has a formal line of credit of $1 million for up to three years with HND Bank. The interest rate on the loan is 5.3 percent, and under the agreement, Lansdowne has to pay an annual fee of 50 basis points on the unused amount. Suppose the firm borrows $675,000 the first day of the agreement. What is the fee the company must pay on the unused balance? What is the effective interest rate?

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...