In exchange for a $300 million fixed commitment line of credit, your firm has agreed to do
Question:
In exchange for a $300 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 1.85 percent per quarter on any funds actually borrowed.
2. Maintain a 4.5 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 $115 million of the line and pays it off in one year. What is the effective annual interest rate on this $115 million loan?
Step by Step Answer:
a For every dollar borrowed you pay interest of Interest 11 0185 4 1 076 You also must maintain a co...View the full answer
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan
