In exchange for a $420 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 3.0% per quarter on any funds actually borrowed. 2. Maintain a 5% compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of 0.120% of the amount of the line. Based on this information, answer the following: a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Effective annual interest rate b. Suppose your firm immediately uses $200 million of the line and pays it off in one year. What is the effective annual interest rate on this $200 million loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Effective annual interest rate %
In exchange for a $420 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 3.0% per quarter on any funds actually borrowed. 2. Maintain a 5% compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of 0.120% of the amount of the line. Based on this information, answer the following: a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Effective annual interest rate b. Suppose your firm immediately uses $200 million of the line and pays it off in one year. What is the effective annual interest rate on this $200 million loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Effective annual interest rate %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
15)
![In exchange for a $420 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 3.0% per quarter on any funds actually borrowed.
2. Maintain a 5% compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of 0.120% of the amount of the line.
Based on this information, answer the following:
Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? (Do not round intermediate
calculations. Round the final answer to 2 decimal places.)
а.
Effective annual interest rate
b. Suppose your firm immediately uses $200 million of the line and pays it off in one year. What is the effective annual interest
rate on this $200 million loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Effective annual interest rate
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F84393282-b929-4c46-8d27-d18c726dd70f%2Fd040fcc3-21da-4929-ba12-d6ba3d910aa6%2F1ddwxwd_processed.png&w=3840&q=75)
Transcribed Image Text:In exchange for a $420 million fixed commitment line of credit, your firm has agreed to do the following:
1. Pay 3.0% per quarter on any funds actually borrowed.
2. Maintain a 5% compensating balance on any funds actually borrowed.
3. Pay an up-front commitment fee of 0.120% of the amount of the line.
Based on this information, answer the following:
Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? (Do not round intermediate
calculations. Round the final answer to 2 decimal places.)
а.
Effective annual interest rate
b. Suppose your firm immediately uses $200 million of the line and pays it off in one year. What is the effective annual interest
rate on this $200 million loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)
Effective annual interest rate
%
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