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Average borrowings during the year are expected to be 2

Question - 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.

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Accounting Basics: Average borrowings during the year are expected to be 2

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