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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Definitions:

Firm's Demand

The total quantity of a product or service that a business anticipates consumers will purchase at various price levels.

Derived Demand

Demand for a good or service that arises from the demand for another good or service; for example, the demand for steel is derived from the demand for cars.

Input

Refers to the resources, materials, or services that are used in the production of goods and services.

Output

The total amount of goods or services produced by a company, industry, or country.