New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are curréntly paying.68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest. O 8.40 percent 8.89 percent Q 8.67 percent O 8.51 percent
New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are curréntly paying.68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest. O 8.40 percent 8.89 percent Q 8.67 percent O 8.51 percent
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 17P
Related questions
Question
![New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1
percent per quarter. The loan agreement also requires that 2.5 percent of the unused
portion of the credit line be deposited in a non-interest-bearing account as a
compensating balance. Short-term investments are currently paying .68 percent per
quarter. What is the effective annual interest rate on the line of credit if you borrow
the entire amount for one year? Assume any funds borrowed or invested use
compound interest.
O 8.40 percent
8.89 percent
Q 8.67 percent
O 8.51 percent
O 8.62 percent](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd920f7ee-9ec4-409a-99d9-ced69faeda40%2F8d22db00-e239-4cf9-be0d-8ade1759ebf8%2Fiw8y7u_processed.jpeg&w=3840&q=75)
Transcribed Image Text:New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1
percent per quarter. The loan agreement also requires that 2.5 percent of the unused
portion of the credit line be deposited in a non-interest-bearing account as a
compensating balance. Short-term investments are currently paying .68 percent per
quarter. What is the effective annual interest rate on the line of credit if you borrow
the entire amount for one year? Assume any funds borrowed or invested use
compound interest.
O 8.40 percent
8.89 percent
Q 8.67 percent
O 8.51 percent
O 8.62 percent
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![Pfin (with Mindtap, 1 Term Printed Access Card) (…](https://www.bartleby.com/isbn_cover_images/9780357033609/9780357033609_smallCoverImage.jpg)
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
![EBK CONTEMPORARY FINANCIAL MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781337514835/9781337514835_smallCoverImage.jpg)
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
![Intermediate Financial Management (MindTap Course…](https://www.bartleby.com/isbn_cover_images/9781337395083/9781337395083_smallCoverImage.gif)
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
![Pfin (with Mindtap, 1 Term Printed Access Card) (…](https://www.bartleby.com/isbn_cover_images/9780357033609/9780357033609_smallCoverImage.jpg)
Pfin (with Mindtap, 1 Term Printed Access Card) (…
Finance
ISBN:
9780357033609
Author:
Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College