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

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Definitions:

Permian

The last geological period of the Paleozoic era, spanning from about 299 to 252 million years ago, preceding the Mesozoic era.

Mesozoic Layers

Stratified layers of rock that were formed during the Mesozoic Era, which spans from about 252 to 66 million years ago, encompassing the Triassic, Jurassic, and Cretaceous periods.

Dinosaur Fossils

Remains or traces of dinosaurs preserved in rock.

First Reptiles

Earliest forms of reptiles, marking the origin and evolution of reptilian species on Earth.