Problem:
You've worked out a line of credit arrangement that allows you to borrow up to $40 million at any time. The interest rate is 0.52 percent per month. In addition, 6 percent 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.
Required:
Question 1: What is the effective annual interest rate on this lending arrangement? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
Question 2: Suppose you need $22 million today and you repay it in 6 months. How much interest will you pay?
Note: Provide support for rationale.