Costs of Borrowing. In exchange for a $400 million fixed commitment line of credit. your firm has agreed to do the following:1. Pay 1.6 percent per quarter on any funds actually borrowed.2. Maintain a 4 percent compensating balance on any funds actually borrowed.3. Pay an up-front commitment fee of .125 percent of the amount of the line.Based on this information, answer the following:a. Ignoring the commitment fee, what is the effective annual interest rate on this line of credit”?b. Suppose your firm immediately uses $210 million of the line and pays it off in one year. What is the effective annual interest rate on this $210 million loan?
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