In exchange for a $400 million fixed commitment line of credit, your firm has agreed to do
Question:
In exchange for a $400 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 4 percent compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of .25 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 $210 million of the line and pays it off in one year. What is the effective annual interest rate on this $210 million loan?
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a For every dollar borrowed you pay interest of Interest 1018 0018 You also must maintain a compensating balance of 4 percent of the funds borrowed so ...View the full answer
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Related Book For 
Essentials Of Corporate Finance
ISBN: 9780073382463
7th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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