AFP CTP Question Answer
A company has negotiated a credit facility with the following terms:
$5,000,000 line of credit
$3,000,000 average borrowing
30 basis point commitment fee on unused portion of line
Interest rate on advances is 1-month LIBOR plus 4%
1-month LIBOR is currently 2%
Compensating balance requirement of 20% on the outstanding borrowings
What is the effective annual borrowing rate for the line of credit?
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