PLEASE NOTE: THIS IS MY PROFESSORS LECTURE SLIDE AND HIS FORMULA IS NOT GIVING ME THE CORRECT ANSWER

If you have a $84,662 line of credit at 5.5%, and the commitment fee is 1.8%, what is the effective annual interest rate if your average daily balance is $63,930? Remember to express your answer in decimal format, not as a percentage. Therefore, if your answer is 7.65%, you should enter in 0.0765 with four significant digits after the decimal. Lines of Credit Compensating balances Example: Determine the effective annual interest rate on a $50,000 line of credit with a 10% compensating balance. Interest is 12% APR compounded monthly and the average daily balance for the year is $25,000. Hint: 12% APR is paid on both the average daily balance ($25,000) and compensating balance ($5,000). Formula - (1+r/c)-1 ; r = rate, c= compounding periods $30,000[1+(12%/12)]2-1 = $3,805 $3,805/$25,000 (actual credit used) = 15.2% If you have a $84,662 line of credit at 5.5%, and the commitment fee is 1.8%, what is the effective annual interest rate if your average daily balance is $63,930? Remember to express your answer in decimal format, not as a percentage. Therefore, if your answer is 7.65%, you should enter in 0.0765 with four significant digits after the decimal. Lines of Credit Compensating balances Example: Determine the effective annual interest rate on a $50,000 line of credit with a 10% compensating balance. Interest is 12% APR compounded monthly and the average daily balance for the year is $25,000. Hint: 12% APR is paid on both the average daily balance ($25,000) and compensating balance ($5,000). Formula - (1+r/c)-1 ; r = rate, c= compounding periods $30,000[1+(12%/12)]2-1 = $3,805 $3,805/$25,000 (actual credit used) = 15.2%