New Town Bank offers you a $40,000 line of credit with an interest rate of 1.6 percent per quarter. The loan agreement also requires

New Town Bank offers you a $40,000 line of credit with an interest rate of 1.6 percent per quarter. The loan agreement also requires that 3 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Short-term investments are currently paying 1.1 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire $40,000 for one year? Assume any funds borrowed or invested use compound interest.    A.  4.47 percent B.  4.58 percent C.  6.56 percent D.  7.78 percent E.  12.33 percent Effective annual interest = (1.016)4 - 1 = 6.56 percent

94.

Josie's Craft Shack has a beginning cash balance for the quarter of $1,126. The store has a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow funds as needed to maintain that balance. Currently, the firm has a loan balance of $480. How much will the store borrow or repay if the net cash flow for the quarter is -$280?    A.  $0 B.  $28 C.  $126 D.  $154 E.  $280 Cash deficit = $1,126 - $280 - $1,000 = -$154. The firm needs to borrow $154.

95.

The Cement Works has a beginning cash balance for the quarter of $784. Susie, the firm's president, requires that a minimum cash balance of $900 be maintained and requires that borrowing be used to maintain that balance. If funds have been borrowed, then she requires that those loans be repaid as soon as excess funds are available. Currently, the firm has a loan outstanding of $1,260. How much will the firm borrow or repay this quarter if the quarterly receipts are $3,918 and the quarterly disbursements are $3,774?    A.  borrow $16 B.  borrow $128 C.  borrow $144 D.  repay $28 E.  repay $144 Cash surplus = $784 + $3,918 - $3,774 - $900 = $28. The firm will repay $28 this quarter.