A bank is willing to issue a line of credit to fully back a $25 million issue of commercial paper for a fee of one percent. If a portion of the line is used, an interest rate of 8 percent will be assessed. The compensating balance requirement for the line of credit is 5 percent when the portion of the line is used. That portion that is unused carries a 20 percent compensating balance requirement. How much will the borrowing company pay for the full unused line? Suppose $1.5 million is actually drawn upon for unexpected expenses and the balance of the credit line is used merely to back the paper issue. How much will the borrowing firm pay in total bank charges?

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The Answer of A bank is willing to issue a line of credit to fully back a $25 million issue of commercial paper for a fee of one percent. If a portion of the line is used, an interest rate of 8 percent will be assessed. The compensating balance requirement for the line of credit is 5 percent when the portion of the line is used. That portion that is unused carries a 20 percent compensating balance requirement. How much will the borrowing company pay for the full unused line? Suppose $1.5 million is actually drawn upon for unexpected expenses and the balance of the credit line is used merely to back the paper issue. How much will the borrowing firm pay in total bank charges?

A Bank Is Willing to Issue a Line of Credit