Youâve worked out a line of credit arrangement that allows you to borrow up to $60 million at any time. The interest rate is .59 percent per month. In addition, 6 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans. a. What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual rate % b. Suppose you need $30.08 million today and you repay it in five months. How much interest will you pay? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Total interest paid $
Youâve worked out a line of credit arrangement that allows you to borrow up to $60 million at any time. The interest rate is .59 percent per month. In addition, 6 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans. a. What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual rate % b. Suppose you need $30.08 million today and you repay it in five months. How much interest will you pay? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Total interest paid $
Related questions
| A bank offers your firm a revolving credit arrangement for up to $63 million at an interest rate of 1.46 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a noninterest-bearing account. Assume you have a short-term investment account at the bank that pays .87 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. |
| Required: | |
| (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? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Effective annual rate | % |
| (b) | What is your effective annual interest rate on the lending arrangement if you borrow $37 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Effective annual rate | % |
| (c) | What is your effective annual interest rate if you borrow $63 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Effective annual rate | % |
| A bank offers your firm a revolving credit arrangement for up to $72 million at an interest rate of 1.80 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.15 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? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Effective annual interest rate | % |
| b. | What is your effective annual interest rate on the lending arrangement if you borrow $38 million immediately and repay it in one year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Effective annual interest rate | % |
| c. | What is your effective annual interest rate if you borrow $72 million immediately and repay it in one year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Effective annual interest rate | % |
