Juno Industrial Supply has a $150,000 line of credit with a 7.5 percent interest rate. The loan agreement requires a 2 percent compensating balance

Juno Industrial Supply has a $150,000 line of credit with a 7.5 percent interest rate. The loan agreement requires a 2 percent compensating balance, which is based on the total amount borrowed, and which will be held in an interest-free account. What is the effective interest rate if the firm borrows $90,000 on the line of credit for one year?    A.  5.42 percent B.  5.50 percent C.  7.30 percent D.  7.50 percent E.  7.65 percent Amount borrowed = $90,000/(1 - 0.02) = $91,836.73 Annual interest = $91,836.73 × 0.075 = $6,887.76 Effective interest rate = $6,887.76/$90,000 = 7.65 percent

88.

Rachel's has a $50,000 line of credit with Uptown Bank. The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent. The compensating balance is based on the total amount borrowed and will be held in an interest-free account. What is the effective annual interest rate if the firm borrows $35,000 for one year?    A.  7.76 percent B.  8.00 percent C.  8.17 percent D.  8.33 percent E.  8.42 percent Amount borrowed = $35,000/(1 - 0.04) = $36,458.33 Annual interest = $36,458.33 × 0.08 = $2,916.67 Effective interest rate = $2,916.67/$35,000 = 8.33 percent

89.

The Delta Fish Hatchery factors its accounts receivables immediately at a 2 percent discount. The average collection period is 34 days. Assume that all accounts are collected in full. What is the effective annual interest rate on this arrangement?    A.  24.22 percent B.  25.20 percent C.  25.36 percent D.  25.78 percent E.  26.04 percent Interest rate for 34 days = 0.02/(1 - 0.02) = 0.020408163 Number of periods per year = 365/34 = 10.735294 Effective annual rate = 1. 02040816310.735294 - 1 = 24.22 percent