A bank offers your firm a revolving credit arrangement for up to $68 million at an interest rate of 1.70% per quarter. The bank alsorequires you to maintain a compensating balance of 4% 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 1.05% per quarter, and assume that the bankuses compound interest on its trevolving credit loans. (Do not round intermediate calculetions. Round the final answers to 2 decimalplaces.)a. What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use Itduring the year?Effective annual Interest rateb. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in oneyear?Effective annual interest rate1%c. What is your effective annual interest rate if you borrow $68 milion Immediately and repoy it in one year?Effective annual interest rate

Interest rate is the percentage rate being charged upon the par value of the money issued or funded.…

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? Effective annual interest rate b. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in one year? Effective annual interest rate c. What is your effective annual interest rate if you borrow $68 million Immediately and repay it in one year? Effective annual interest rate

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? Effective annual interest rate b. What is your effective annual interest rate on the lending arrangement if you borrow $35 million immediately and repay it in one year? Effective annual interest rate c. What is your effective annual interest rate if you borrow $68 million Immediately and repay it in one year? Effective annual interest rate

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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