The Boyles Ceramics,Inc.established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $1,000,000 at an annual rate of 8 percent.A compensating balance averaging 25 percent of the amount borrowed is required.Prior to the agreement,Boyles had no deposit with the bank.Shortly after signing the agreement,Boyles needed $240,000 to pay off a note that was due.It borrowed the $240,000 from the bank by drawing on the line of credit.What is the effective annual cost of credit?
A) 12.50%
B) 11.11%
C) 10.67%
D) 8.85%

Question

Quizplus · Accepted Answer

The Answer of The Boyles Ceramics,Inc.established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $1,000,000 at an annual rate of 8 percent.A compensating balance averaging 25 percent of the amount borrowed is required.Prior to the agreement,Boyles had no deposit with the bank.Shortly after signing the agreement,Boyles needed $240,000 to pay off a note that was due.It borrowed the $240,000 from the bank by drawing on the line of credit.What is the effective annual cost of credit?
A) 12.50%
B) 11.11%
C) 10.67%
D) 8.85%