Fancy Footwear Has a Line of Credit with a Local

question 109

Multiple Choice

Fancy Footwear has a line of credit with a local bank in the amount of $80,000.The loan agreement calls for interest of 7 percent with a compensating balance of 5 percent,which is based on 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 to borrow $75,000 for one year to cover operating expenses?

• A)7.37 percent
• B)7.43 percent
• C)7.56 percent
• D)8.17 percent
• E)8.33 percent

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