In exchange for a $300 million fixed commitment line of credit, your firm has agreed to do the following: 1. Pay 1.93 percent per quarter on any funds actually borrowed. 2. Maintain a 4.5 percent compensating balance on any funds actually borrowed. 3. Pay an up-front commitment fee of .45 percent of the amount of the line. Based on this information, answer the following: a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit? b. Suppose your firm immediately uses $115 million of the line and pays it off in one year. What is the effective annual interest rate on this $115 million loan?
