Conways Roofing Services Is Offered a $1 Million Line of Credit

question 19

Multiple Choice

Conways Roofing Services is offered a $1 million line of credit for three months at an APR of 8%. The bank requires that the firm keep an amount equal to 12% of the loan principal in a non-interest-earning account with the bank as long as the loan remains outstanding. What is the actual three-month interest rate paid, expressed as an EAR?

• A) 9.41%
• B) 24.40%
• C) 60.30%
• D) 80.40%

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Definitions:

Double-entry Bookkeeping System

A method of bookkeeping where every entry to an account requires a corresponding and opposite entry to a different account, ensuring the accounting equation is always in balance.

Fraud

A deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.

Trial Balance

A bookkeeping report that lists the balances in each general ledger account at a specific time, ensuring that debits equal credits.

Individual Accounts

Financial accounts that are owned by a single individual, as opposed to joint accounts owned by multiple parties.