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%

-Refer to Smith Enterprise Credit line (w/o comp).If you only borrowed $2,000,000 against the line,what would be your 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%

-Refer to Smith Enterprise Credit line (w/o comp).If you only borrowed $2,000,000 against the line,what would be your effective borrowing rate?

Quizplus · Accepted Answer

EBR = {.078´2000000)+[(.0045(5000000-2000000)]}/2000000 ´ 365/365 = .0848

Smith Enterprise Credit Line (W/o Comp)