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

question 56

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, 5 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)6.50 percent
• B)6.62 percent
• C)6.81 percent
• D)6.87 percent
• E)6.94 percent