Homework Help: Finance

Posted by Ken on Sunday, October 10, 2010 at 4:49pm.

A bank offers your firm a revolving credit arrangement for up to $85 million at an interest rate of 2.5 percent per quarter. The bank also requires you to maintain a compensating balance of 4 percent 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 10 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans.

Your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year is percent

The way I was taught to do this was
1.7^3-1 which would equal 39.13. That is not the answer. Is 1.7 not the number used?

No one has answered this question yet.

Answer this Question

Related Questions

Finance - You receive $12,000 and looking for a bank to deposit the funds. Bank ...
Finance - You receive $12,000 and looking for a bank to deposit the funds. Bank ...
Business Finance - Assume a bank loan requires a interest payment of $85 per ...
Finance - midland chemcial is negotating a loan from manhattan bank and trust. ...
FINANCE - Answer both questions A).The treasurer of a German firm has €5 ...
Fin - Midland Chemical Co is negotiating a loan from Manhattan Bank and Trust. ...
Finance - United Technology Corporation (UTC) has $40 million of convertible ...
finance - The banks offers a rate of 8 1/4 percent with a 20percentcompensating ...
math - You receive $12,000 and looking for a bank to deposit the funds. Bank A ...
math - You receive $12,000 and looking for a bank to deposit the funds. Bank A ...

For Further Reading

First Name:
School Subject:
Answer: