Gibbs, Inc

question 18

Multiple Choice

Gibbs, Inc. 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 percent on the loan, and in addition the firm will pay an annual fee of 50 basis points on the unused balance. The firm borrowed $600,000 on the first day the credit line became available. What is the firm's effective interest rate on this line of credit? Round your final percentage answer to 2 decimal places.

• A) 8.00%
• B) 7.25%
• C) 6.58%
• D) 8.25%

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Definitions:

Contract Law

A branch of legal studies that deals with agreements between parties, their rights, and obligations.

Five-Year Renewal

Typically refers to the option or requirement to renew a contract, license, or agreement for an additional five-year period.

Mechanical Engineer

A professional who applies principles of physics and materials science for the design, analysis, manufacturing, and maintenance of mechanical systems.

Valid Contract

A contract that results when the elements necessary for contract formation (agreement, consideration, contractual capacity, and legality) are present.