You've Worked Out a Line of Credit Arrangement That Allows

question 44

Multiple Choice

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 0.5 percent per month.In addition,7 percent of the amount that you borrow must be deposited in a non-interest bearing account.Assume your bank uses compound interest on its line of credit loans.What is the effective annual interest rate on this lending arrangement?

• A)6.65 percent
• B)6.72 percent
• C)6.81 percent
• D)6.87 percent
• E)6.94 percent

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