Carlos has applied for revolving credit line of $87,142,000 to assist in marketi
ID: 2711114 • Letter: C
Question
Carlos has applied for revolving credit line of $87,142,000 to assist in marketing a new product line. the terms of the loan will be as follows:
-ALL the loan will be discount loans
-a commitment fee of .4 % on the unused portion of the loan will be charged.
-the compensatory balance requirements will be 5 percent on the total line of credit and there will be no charge on the outstanding loan
-the bank will pay 4 percent interest on demand deposits
-the rate of interest to be charged will b the prime rate plus 3 percent
-the credit line will be extended for a period of 5 years
the loan officer estimates that carlos will use about 27 percent of the credit line on average, if the prime rate is 8 percent and the required reserve rate on demand deposits is 14 percent. compute the effective cost to carlos
A 15.69%
B 15.89
C 16.09
D 16.29
Explanation / Answer
Carlos has applied for revolving credit line of $87,142,000 to assist in marketi