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Formal Line of Credit: Gibbs Ltd Has Just Set Up

question 71

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Formal line of credit: Gibbs Ltd has just set up a formal line of credit of $1 million with First National Bank. The line of credit is good for up to five 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 50 basis points on the unused balance. The company borrowed $600,000 on the first day the credit line became available. What is the company's effective interest rate on this line of credit?


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