Smith Enterprise Credit Line (W/o Comp)

question 5

Multiple Choice

Smith Enterprise Credit line (w/o comp)
Smith Enterprise has an one year credit line of $5,000,000 with Second Bank. On average Smith uses $3,250,000 of the credit line. Second Bank charges a .45% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +1.5%. Assume that the LIBOR is 6.3%

-Refer to Smith Enterprise Credit line (w/o comp) .What is the change in your EBR if you only borrow $2,000,000 instead of $3,250,000?

• A) increases by .44%
• B) decreases by .44%
• C) does not change
• D) increases by .78%

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