Trend, Inc

question 73

Multiple Choice

Trend, Inc. has just set up a formal line of credit of $5 million with First National Bank. The line of credit is good for up to three years. The bank will be charging them an interest rate of 7.5 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 $2,300,000 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 one decimal place.

• A) 8.5%
• B) 7.2%
• C) 9.0%
• D) 8.1%

---

Definitions:

Progressive Tax Structure

A tax system in which the tax rate increases as the taxable amount or income increases, placing a heavier burden on those who can afford to pay more.

Marginal Tax Rate

The rate at which an additional dollar of income is taxed.

Vertical Equity

A principle in taxation that says taxpayers with a higher ability to pay should contribute more in taxes.

Marginal Tax Rate

The rate at which an additional dollar of income is taxed, representing the percentage of tax applied to your last dollar of income.