A company has a $$10$ million line of credit with a

monthly interest rate of $\mathrm{.}75\%.$ The company is required to maintain a $3\%$

compensating balance on any funds used from the line of credit, which is

deposited in a non$-$interest bearing account. Assume compound interest is

used.

$1.$ What is the effective annual interest rate on this lending arrangement?

$2.$ Assume the company needs $$970,000$ today, which it plans to repay entirely

a year from now. How much interest would the company save if the lender

agrees to reduce the monthly interest rate by $\mathrm{.}25\%?($Assume a $3\%$

compensating balance on any funds actually borrowed would still be required$)$

Answer rating: 100% (QA)

Effective Interest Rate and Interest Savings Calculation 1 Effective Annual Interest Rate Heres how ... View the full answer