All Rite Co

question 58

Multiple Choice

All Rite Co.has arranged a line of credit of $225,000 with an interest rate of 8.25 percent and a compensating balance requirement of 1.5 percent,which is based on the total amount borrowed.Assume the firm uses this source of funding to purchase a $167,000 piece of equipment and repays the loan in a lump sum at the end of one year.What is the effective interest rate?

• A)9.75 percent
• B)9.27 percent
• C)8.08 percent
• D)8.26 percent
• E)8.38 percent

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Definitions:

Primarily Liable

Being directly responsible for a debt or obligation, without secondary parties to share the liability.

Secondarily Liable

Someone who is secondarily liable holds responsibility to fulfill an obligation if the primary party fails to do so, commonly seen in guarantor or co-signer financial arrangements.

Payable

Refers to money that is owed by a person or company and must be paid to another party.

Obligation

A legal or moral duty to do or not do something, often with legal implications if not fulfilled.