Uncle Ben InC. arranged a P9,000,000 revolving credit agreement with a group of banks. The firm paid an annual commitment fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 8% during the year. If the firm borrowed P7,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the effective cost of the agreement? (Please answer this percentage in amount with two decimal points e.g. xx.xx; do not denote percentage anymore)

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
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During computation, you may round your integer data to two decimal places and your percentages and present value factors to four decimal places.
Uncle Ben Inc. arranged a P9,000,000
revolving credit agreement with a group
of banks. The firm paid an annual
commitment fee of 0.5% of the unused
balance of the loan commitment. On
the used portion of the revolver, it paid
1.5% above prime for the funds actually
borrowed on a simple interest basis.
The prime rate was 8% during the year.
If the firm borrowed P7,000,000
immediately after the agreement was
signed and repaid the loan at the end of
one year, what was the effective cost of
the agreement? (Please answer this
percentage in amount with two decimal
points e.g. xx.Xx; do not denote
percentage anymore)
Transcribed Image Text:Uncle Ben Inc. arranged a P9,000,000 revolving credit agreement with a group of banks. The firm paid an annual commitment fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 8% during the year. If the firm borrowed P7,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the effective cost of the agreement? (Please answer this percentage in amount with two decimal points e.g. xx.Xx; do not denote percentage anymore)
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