Tangshan Mining Borrowed $100,000 for One Year Under a Revolving

question 101

Multiple Choice

Tangshan Mining borrowed $100,000 for one year under a revolving credit agreement that authorized and guaranteed the firm access to $200,000. The revolving credit agreement had a stated interest rate of 7.5 percent and charged the firm a 1 percent commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on the loan was

• A) 7.5%.
• B) 8.0%.
• C) 8.5%.
• D) 9.0%.

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Definitions:

Instalment Payment

A method of payment whereby the total cost of a purchase is divided into smaller amounts, to be paid over a specified period of time.

Loan

Borrowed money that is expected to be paid back with interest over a set period of time.

Non-Current Liability

Long-term financial obligations listed on a company's balance sheet, not due within one year.

Deferred Revenue

Income received by a company for goods or services yet to be delivered or performed.