A bank offers your firm a revolving credit arrangement for up to $ 1 1 0 million
Fantastic news! We've Found the answer you've been seeking!
Question:
A bank offers your firm a revolving credit arrangement for up to $ million at an interest rate of percent per quarter. The bank also requires you to maintain a compensating balance of percent against the unused portion of the credit line, to be deposited in a noninterestbearing account. Assume you have a shortterm investment account at the bank that pays percent per quarter, and assume that the bank uses compound interest on its revolving credit loans.
a What is your effective annual interest rate an opportunity cost on the revolving credit arrangement if your firm does not use it during the year?
Posted Date: