Formal Line of Credit: Storm Electronics Has Set Up a Formal

question 46

Multiple Choice

Formal line of credit: Storm Electronics has set up a formal line of credit of $2 million with First Kentucky Bank. The line of credit is good for up to three years. The bank will be charging them an interest rate of 6.25 per cent on the loan, and in addition the company will pay an annual fee of 60 basis points on the unused balance. The company borrowed $1,500,000 on the first day the credit line became available. What is the company's effective interest rate on this line of credit? Round to two decimal places.

• A) 7.50%
• B) 6.45%
• C) 6.25%
• D) 7.15%

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Definitions:

Confidence Interval

A gamut of values generated from sample statistics, which is likely to envelop the value of an unseen population parameter.

Standard Error

A metric that quantifies the spread of sample averages around the mean of the entire population.

Confidence Level

A measure expressed as a percentage that indicates the probability that a confidence interval contains the true parameter value.

Population Mean

The mean of every value in a given population.