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    Effective Annual Interest Rate

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    You've worked out a line of credit arrangement that allows you borrow up to $70M at any time. The interest rate is .480% per month. In addition , 5% of the amount that you borrow must be deposited in a non interest-bearing account.
    Assume that your bank uses compound interest on its line of credit loans.

    1) What is the effective annual interest rate on this lending arrangement?
    Answer should be: 6.23%

    2) Suppose you need $15M today and you repay it in six months -
    How much interest will you pay?
    Answer: should be: 460,228.73

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    https://brainmass.com/business/interest-rates/effective-annual-interest-rate-111933

    Solution Preview

    1) What is the effective annual interest rate on this lending arrangement?
    Answer should be: 6.23%

    When the fund is compounded monthly, we can compute its annual rate by:
    R = (1+r)^12 - 1
    Where the monthly rate is r = .48%, and ...

    Solution Summary

    Effective annual interest rate is calculated.

    $2.19

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