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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