A Firm Has a Committed Line of Credit with a Maximum

question 27

Multiple Choice

A firm has a committed line of credit with a maximum of $10 million and an interest rate of 8.5% (EAR) with a certain bank. The commitment fee is 0.5% (EAR) . The firm borrows $2 million at the start of the year and then repays it at the end of the year. What is the total cost of the loan?

• A) $520,000
• B) $680,000
• C) $210,000
• D) $720,000

---

Definitions:

Real Line

A linear continuum of points representing real numbers, effectively illustrating the concept of the infinite nature of real numbers on a one-dimensional scale.

Inequality

A mathematical expression that shows the relationship between two values that are not equal, using symbols such as <, >, ≤, or ≥.

Real Line

A one-dimensional continuum that includes all real numbers, each of which corresponds to a unique point on the line.

Inequality

An inequality is a mathematical statement indicating that two quantities are not equal, represented by symbols such as >, <, ≤, or ≥.