uk.finance

shensi0525@ wrote:

> Hi, could anyone help me please. thx very much.
>
> You've worked out a line of credit arrangement that allows you to
> borrow up to $45 million at any time. The interest rate is
> percent per month. In addition, 3 percent of the amount that you
> borrow must be deposited in a noninterest-bearing account. Assume that
> your bank uses compound interest on its line-of-credit loans. The
> effective annual interest rate on this lending arrangement is ______%.
> Suppose you need $12 million today and you repay it in 6 months. You
> will pay $ ______ in interest.
>
> about the first one, i don't know how to calculate,
> is it: (( )^12-1)/.97
> or: (( )^12)/.97 - 1?

It's not good enough to know which one to use, you also have to know why.

But it's hardly rocket science. Why not use an example of borrowing
$1M (of which you then put away 3%) for a whole year, to help you
sort out the mechanics of it? It will then be obvious which of
the two answers is right (and indeed one of them is).

> and the second, is it (12/.97) X (( )^6-1)?

Not quite, but you're on the right track.