Acovado Nuts has a $250,000 line of credit with Broaden Bank. The loan agreement requires that 4% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. The interest rate on the borrowed funds is 10%. What is the effective annual interest rate on the line of credit if Acovado Nuts borrows $120,000 for one year? Assume any funds borrowed or invested use compound interest.

Answer rating: 100% (QA)

To calculate the effective annual interest rate on the line of credit we need to take into account t... View the full answer