Short-Term Financing Questions
1) Calculate the Interest, Commitment Fees, and EAR on the following credit line:
– $500,000 credit line
– 12% interest rate
– $200,000 borrowed on average for year
– 1.0% commitment fee
2) TTDS is offered a $750,000 loan for nine months at an APR of 8%. This loan has a loan origination fee of 2%. What is the EAR on the loan?
3) TTDS is offered a $1,000,000 loan for six months at an APR of 9%. This loan requires TTDS to keep 20% of the loan principal in a non-interest-bearing account with the bank as a compensating balance. What is the EAR on the loan?
4) A firm has a $4 million credit line to borrow at the prime rate (9%). Terms require a 10% compensating balance on borrowed funds and a 0.5% commitment fee on the unused balance. Average borrowings during the year are expected to be $2 million. The firm has $100,000 on deposit at the bank. Calculate the EAR.
5) A firm issues nine-month commercial paper with a $50,000 face value and receives $45,000. What effective annual rate (EAR) is the firm paying for its funds?