Smith Enterprise Credit Line (W/o Comp)

question 27

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) .If you only borrowed $2,000,000 against the line,what would be your effective borrowing rate?

• A) 7.80%
• B) 8.04%
• C) 8.45%
• D) 8.48%

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Definitions:

Real Interest Rates

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the real yield to the lender or investor.

Price Level

An overall mean of the current prices for goods and services in the economic territory.

Value of Money

The purchasing power of money, which reflects the amount of goods or services that one unit of money can buy.

Dollars

The currency unit used in the United States, representing a standard measure of value.