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:

Ratification

The official way to confirm something, usually by vote, making it valid or officially approved.

Agency

A legal entity in which one party (the agent) is authorized to act on behalf of another (the principal) in creating legal relationships with third parties.

Effective

The degree to which something is successful in producing a desired or intended result.

Authority

The legal right or power to make decisions, give orders, or act on behalf of another person or entity.