Smith Enterprise has a one year credit line of $5,000,000 with Second Bank.On average Smith uses half of the credit line.Second Bank charges a .67% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +2%.Assuming that the LIBOR is currently at 4.3%,what is Smith's effective borrowing rate?

Question

Quizplus · Accepted Answer

{(.063´2500000)+(.0067´(5000000-2500000)}/2500000´(365/365)= .0697

Smith Enterprise Has a One Year Credit Line of $5,000,000