Determine the effective annual interest rate on a $25,000 line of credit with an annual percentage rate of 8.75% compounded monthly. The bank requires that a 1.5% commitment fee be paid on the unused...

Determine the effective annual interest rate on a $25,000 line of credit with an annual percentage rate of 8.75% compounded monthly. The bank requires that a 1.5% commitment fee be paid on the unused balance of the line of credit. The average daily balance is anticipated to be $10,000.

A supplier has offered your company a 0.5% discount for all bills that are paid 10 days after they are billed. The bills would normally be due 30 days after they are billed. What is the return on paying the bills early? If your company can borrow funds from a line of credit at a yield of 8%, is it financially attractive to pay the bills early? The line of credit requires a compensating balance.