You’ve worked out a line of credit arrangement that allows you to borrow up to $

Question

You’ve worked out a line of credit arrangement that allows you to borrow up to $50 million at any time. The interest rate is .54 percent per month. In addition, 5 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans.

What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Suppose you need $24 million today and you repay it in 6 months. How much interest will you pay? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

You’ve worked out a line of credit arrangement that allows you to borrow up to $50 million at any time. The interest rate is .54 percent per month. In addition, 5 percent of the amount that you borrow must be deposited in a non-interest-bearing account. Assume that your bank uses compound interest on its line of credit loans.

Explanation / Answer

a.

Monthly interest=50000000*0.54%=270000

Amount received=(1-5%)*50000000=47500000

periodic interest=270000/47500000=0.0056842

Effective interest rate=(1+0.0056842)^12-1=7.04%

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