General accounting Fancy Footwear has a line of credit with a local bank in theamount of $80,000. The loan agreement calls for theinterest of 7% with a compensating balance of 5%, whichis based on the total amount borrowed. Thecompensating balance will be deposited into an interest-free account. What is the effective interest rate on the loanif the firm needs to borrow $75,000 for one year?A. 7.37%B. 7.43%C. 7.56%D. 8.17%E. 8.33%

The question requires the determination of the effective interest rate. The Effective Interest Rate…

Answered: Fancy Footwear has a line of credit…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 14P

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