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Costs of Borrowing Youve worked out a line of credit arrangement that allows you to borrow up to $40 million at any time The interest rate is 485 percent per month In addition 5 percent of the

Costs of Borrowing. You’ve worked out a line of credit arrangement that allows you to borrow up to $40 million at any time. The interest rate is .485 percent per month. In addition, 5 percent of the amount that you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans.

a. What is the effective annual interest rate on this lending arrangement?

b. Suppose you need $15 million today and you repay it in six months. How much interest will you pay?

May 25 2020 View more View Less

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