Hope and Love Hospital operates in Northern Illinois. Their Chief Finance Officer (CFO), who goes by Saint Valentine, reached out to Bank of Cupid, LLC earlier in the year and opened a line of credit (LOC). The LOC was for $10,500,000.00 with an interest rate of 8.325% and compensating rate of 5.000% of the unused loan. Bank of Cupid, LLC was quite lenient with their terms to Saint Valentine and charged modest fees from Hope and Love Hospital for the LOC in the amount of $5,000.00. Hope and Love Hospital only drew upon $4,000,000.00 from the LOC. What was the compensating balance effective interest rate?

Answer rating: 100% (QA)

To calculate the compensating balance effective interest rate CBEIR you need to consider both the ... View the full answer