Jetson Co.has an $80,000 line of credit with a 12 percent interest rate and a 10 percent compensating balance requirement that is based on the total amount borrowed.What is the effective annual interest rate if the firm needs $45,000 for one year?

Question

Quizplus · Accepted Answer

Amount borrowed = $45,000/(1 - .10)= $50,000Annual interest = $50,000 × .12 = $6,000Effective interest rate = $6,000/$45,000 = .1333,or 13.33%

Jetson CoHas an $80,000 Line of Credit with a 12 Percent