Fancy Footwear Has a Line of Credit with a Local

question 65

Multiple Choice

Fancy Footwear has a line of credit with a local bank in the amount of $175,000. The loan agreement calls for annual interest of 6.8 percent with a compensating balance of 3 percent of the total amount borrowed. The compensating balance will be deposited into an interest-free account. What is the effective interest rate on the loan if the firm needs $125,000 to cover expenses for one year?

• A) 7.01 percent
• B) 7.13 percent
• C) 6.94 percent
• D) 7.17 percent
• E) 7.08 percent

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Definitions:

Qualitative Research

A method of inquiry that focuses on understanding human behavior and the reasons that govern such behavior.

Non-Numeric Results

Outcomes of an action or research that are qualitative in nature and cannot be measured with numbers.

Consumer Buying Criteria

The specific attributes or factors that consumers consider important when making purchasing decisions, such as price, quality, and brand reputation.

Fair Value Frontier

A concept in finance that represents the optimal balance between the fair value of an asset and the risk associated with owning it.