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:

Empirical Approach

A method of inquiry that relies on direct and indirect observation or experience, as well as empirical evidence, to gain knowledge, often used in scientific research to test hypotheses and theories.

Physical Health

Pertains to the well-being of the body, free from illness, injury, or pain, and the maintenance thereof through nutrition, exercise, and lifestyle habits.

Speculation

Inference or consideration of a subject without firm evidence.

Scientific Attitude

The practice of being curious, skeptical, and open-minded while seeking empirical evidence and explanations about the natural world.