As treasurer of your firm, you wish to establish a credit line facility to cover an expected average annual borrowing of $10 million. Bank of the West proposes a nominal rate of 6 percent on a credit line of $30 million, a commitment fee of 25 basis points on the unused portion of the credit line and a 35 percent compensating balance on the amount borrowed. What is the effective cost of borrowing? a. 10%
b. 9.62%
c. 16.92%
d. 13.08%

a. 10%

Explanation:

Interest cost at 6% = 10,000,000 * 6%

Interest cost at 6% = 600,000

Unused balance = 30,000,000 - 10,000,000

Unused balance = 20,000,000

Commitment fee at 0.25% = 20,000,000 * 0.25%

Commitment fee at 0.25% = 50,000

Compensating balance at 35% = 10,000,000 * 35%

Compensating balance at 35% = 3,500,000

Usable amount = 10,000,000 - 3,500,000

Usable amount = 6,500,000

So, Cost of borrowing = (600,000 + 50,000) / 6,500,000

Cost of borrowing = 650,000 / 6,500,000

Cost of borrowing = 0.1

Cost of borrowing = 10%

So, the effective cost of borrowing is 10%

the answer is: c.that person might be arrested and deported

filling w-4 form incorrectly usually would rise suspicions from government's auditors. when they notice such mistakes, they would send their teams to investigate the situation further.

if those investigation teams believe that the incorrectness is done on purpose (with malicious intent), that person can be arrested or deported