The Babco Co

question 61

Multiple Choice

The Babco Co.has a £200,000 line of credit with an 8% interest rate and a 10% compensating balance requirement which is based on the total amount borrowed.What is the effective interest
Rate if the firm uses this source of funding to purchase a £117,000 piece of equipment? The company
Plans on repaying the loan in a lump sum at the end of one year.

• A)7.20%
• B)7.27%
• C)8.08%
• D)8.80%
• E)8.89%