New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are currently paying.68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest. O 8.40 percent 8.89 percent 08.67 percent 0 8.51 percent 8.62 percent
New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are currently paying.68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest. O 8.40 percent 8.89 percent 08.67 percent 0 8.51 percent 8.62 percent
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 30P
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Transcribed Image Text:New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1
percent per quarter. The loan agreement also requires that 2.5 percent of the unused
portion of the credit line be deposited in a non-interest-bearing account as a
compensating balance. Short-term investments are currently paying .68 percent per
quarter. What is the effective annual interest rate on the line of credit if you borrow
the entire amount for one year? Assume any funds borrowed or invested use
compound interest.
8.40 percent
8.89 percent
O 8.67 percent
8.51 percent
8.62 percent
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