Smith Enterprise Credit line (w/o comp)
Smith Enterprise has an one year credit line of $5,000,000 with Second Bank. On average Smith uses $3,250,000 of the credit line. Second Bank charges a .45% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +1.5%. Assume that the LIBOR is 6.3%

-What is Smith's effective borrowing rate?

Question

Smith Enterprise Credit line (w/o comp)
Smith Enterprise has an one year credit line of $5,000,000 with Second Bank. On average Smith uses $3,250,000 of the credit line. Second Bank charges a .45% commitment fee on the unused portion of the line and the interest rate is set at LIBOR +1.5%. Assume that the LIBOR is 6.3%

-What is Smith's effective borrowing rate?

Quizplus · Accepted Answer

EBR = {.078´3250000)+[(.0045(5000000-3250000)]}/3250000 ´ 365/365 = .0804

Smith Enterprise Credit Line (W/o Comp)