The Sports Store has a $230,000 line of credit that requires…
The Sports Store has a $230,000 line of credit that requires 1.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. The interest rate on the borrowed funds is 2.05 percent per quarter. The Sports Store’s short-term investments are paying 1.5 percent per quarter. What is the effective annual interest rate on the line of credit if the entire credit line is borrowed for one year? Assume any funds borrowed or invested use compound interest.