A Firm Has a Committed Line of Credit with a Maximum

question 84

Multiple Choice

A firm has a committed line of credit with a maximum of $2.5 million and an interest rate of 9% (EAR) with a certain bank. The commitment fee is 0.65% (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) $180,000
• B) $183,250
• C) $193,000
• D) $212,500

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Definitions:

Maximize Wealth

The process or strategy aimed at increasing the net value of assets owned by an individual or corporation.

Opportunity Cost

The worth of the best option given up by choosing to follow a specific course of action.

Different Utilities

The concept relating to the varied usefulness or satisfaction that consumers derive from products or services.

Roommates

Individuals who share a living accommodation, where each person typically has their own room but shares other facilities like the bathroom and kitchen.