Formal Line of Credit: Trend, Inc

question 19

Multiple Choice

Formal line of credit: 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 to one decimal place.

• A) 8.5%
• B) 7.25%
• C) 9.0%
• D) 8.1%

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