AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash balance
52. A cumulative cash deficit indicates a firm:
A. has at least a short-term need for external funding.
B. is facing long-term financial distress.
C. will go out of business within the year.
D. is capable of funding all of its needs internally.
E. is using its cash wisely.
Refer to section 18.4
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash balance
53. The most common means of financing a temporary cash deficit is a:
A. long-term secured bank loan.
B. short-term secured bank loan.
C. short-term issue of corporate bonds.
D. long-term unsecured bank loan.
E. short-term unsecured bank loan.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Short-term borrowing
54. The primary difference between a line of credit and a revolving credit arrangement is the:
A. type of collateral used to secure the loan.
B. length of the credit period.
C. fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured.
D. fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured.
E. classification as either a committed or a noncommitted loan.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Short-term borrowing
55. A compensating balance:
I. is required when a firm acquires any bank financing other than a line of credit.
II. increases the cost of short-term bank financing.
III. may be required even if a firm never borrows funds.
IV. is often used as a means of paying for banking services received.
A. I and III only
B. II and IV only
C. II and III only
D. I and IV only
E. II, III, and IV only
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Short-term borrowing
56. High Point Hotel (HPH) has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?
A. HPH will immediately receive $165,000 and will have no further obligation related to these receivables.
B. HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables.
C. Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables.
D. Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed.
E. HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account.
Refer to section 18.5
AACSB: N/A
Bloom's: Comprehension
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Short-term borrowing
57. Which one of the following statements is correct?
A. The assignment of receivables involves selling the firm's accounts receivables at full price.
B. Lines of credit frequently require a cleanup period.
C. With maturity factoring, the borrower receives the loan amount immediately.
D. Commercial paper is short-term financing offered to highly-rated corporations by major banks.
E. Credit card receivables funding is a relatively inexpensive method of borrowing on a short-term basis.
Refer to section 18.5
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.5
Topic: Short-term borrowing
58. Which of the following are benefits derived from short-term financial planning?
I. having advance notice of when your firm will require external financing
II. being able to determine the extent of time for which a loan is required
III. having the ability to time capital expenditures in order to place the least financial burden possible on a firm
IV. knowing for certain what your cash balance will be six months in advance
A. I and III only
B. I, II, and III only
C. II, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Refer to section 18.6
AACSB: N/A
Bloom's: Knowledge
Difficulty: Basic
Learning Objective: 18-3
Section: 18.6
Topic: Short-term financial plan
59. Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $41,000 and an ending inventory of $47,000. What is the length of the inventory period?
A. 19.21 days
B. 20.89 days
C. 26.72 days
D. 30.53 days
E. 33.69 days
Inventory turnover = $601,000/[($41,000 + $47,000)/2] = 13.65909
Inventory period = 365/13.65909 = 26.72 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Inventory period
60. A national firm has sales of $729,000 and cost of goods sold of $478,000. At the beginning of the year, the inventory was $37,000. At the end of the year, the inventory balance was $41,000. What is the inventory turnover rate?
A. 12.26 times
B. 12.78 times
C. 14.22 times
D. 18.56 times
E. 19.70 times
Inventory turnover = $478,000/[($37,000 + $41,000)/2] = 12.26 times
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Inventory turnover
61. North Side Wholesalers has sales of $948,000. The cost of goods sold is equal to 72 percent of sales. The firm has an average inventory of $23,000. How many days on average does it take the firm to sell its inventory?
A. 11.24 days
B. 12.30 days
C. 16.48 days
D. 26.35 days
E. 29.68 days
Inventory turnover = ($948,000 ´ 0.72)/$23,000 = 29.6765
Inventory period = 365/29.6765 = 12.30 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Inventory period
62. The Bear Rug has sales of $811,000. The cost of goods sold is equal to 63 percent of sales. The beginning accounts receivable balance is $41,000 and the ending accounts receivable balance is $38,000. How long on average does it take the firm to collect its receivables?
A. 17.26 days
B. 17.78 days
C. 18.58 days
D. 20.44 days
E. 29.77 days
Receivables turnover = $811,000/[($41,000 + $38,000)/2] = 20.53165
Receivables period = 365/20.53165 = 17.78 Days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts receivable period
63. The Blue Star has sales of $387,000, costs of goods sold of $259,000, average accounts receivable of $9,800, and average accounts payable of $12,600. How long does it take for the firm's credit customers to pay for their purchases?
A. 7.67 days
B. 8.78 days
C. 9.24 days
D. 11.88 days
E. 13.81 days
Receivables turnover = $387,000/$9,800 = 39.4898
Receivables period = 365/39.4898 = 9.24 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts receivable period
64. The Mountain Top Shoppe has sales of $512,000, average accounts receivable of $31,400 and average accounts payable of $24,800. The cost of goods sold is equivalent to 71 percent of sales. How long does it take The Mountain Top Shoppe to pay its suppliers?
A. 21.76 days
B. 22.38 days
C. 24.90 days
D. 25.89 days
E. 26.67 days
Payables turnover = ($512,000 ´ 0.71)/$24,800 = 14.6581
Payables period = 365/14.6581 = 24.90 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts payable period
65. HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100. Sales for the period were $610,000 and costs of goods sold were $442,000. What is the payables turnover rate?
A. 7.86 times
B. 8.39 times
C. 9.02 times
D. 9.86 times
E. 10.85 times
Payables turnover = $442,000/[($57,300 + $55,100)/2)] = 7.86 times
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Accounts payable turnover
66. Your firm has an inventory turnover rate of 14, a payables turnover rate of 8, and a receivables turnover rate of 19. How long is your firm's operating cycle?
A. 45.06 days
B. 45.28 days
C. 45.63 days
D. 53.13 days
E. 53.78 days
Inventory period = 365/14 = 26.07 days
Accounts receivable period = 365/19 = 19.21 days
Operating cycle = 26.07 + 19.21 days = 45.28 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
67. Merryl Enterprises currently has an operating cycle of 62 days. The firm is analyzing some operational changes, which are expected to increase the accounts receivable period by 2 days and decrease the inventory period by 5 days. The accounts payable turnover rate is expected to increase from 42 to 46 times per year. If all of these changes are adopted, what will the firm's new operating cycle be?
A. 51 days
B. 57 days
C. 59 days
D. 60 days
E. 65 days
Operating cycle = 62 + 2 - 5 = 59 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
68. On average, Furniture & More is able to sell its inventory in 27 days. The firm takes 87 days on average to pay for its purchases. On the other hand, its average customer pays with a credit card which allows the firm to collect its receivables in 4 days. Given this information, what is the length of operating cycle?
A. 31 days
B. 38 days
C. 45 days
D. 56 days
E. 62 days
Operating cycle = 27 + 4 = 31 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
69. Interior Designs has an inventory period of 46 days, an accounts payable period of 38 days, and an accounts receivable period of 32 days. Management is considering an offer from their suppliers to pay within 10 days and receive a 2 percent discount. If the new discount is taken, the accounts payable period is expected to decline by 26 days. If the new discount is taken, the operating cycle will be _____ days.
A. 52
B. 62
C. 71
D. 78
E. 91
Original operating cycle = 46 + 32 = 78 days; The operating cycle will not change as the accounts payable period does not affect the operating cycle, only the cash cycle.
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Operating cycle
70. Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18. What is the length of the cash cycle?
A. 3.00 days
B. 5.28 days
C. 26.28 days
D. 71.00 days
E. 73.28 days
Cash cycle = (365/18) + 53 - 68 = 5.28 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
71. West Chester Automation has an inventory turnover of 16 and an accounts payable turnover of 11. The accounts receivable period is 36 days. What is the length of the cash cycle?
A. 5.67 days
B. 25.63 days
C. 41.00 days
D. 52.00 days
E. 58.81 days
Cash cycle = (365/16) + 36 - (365/11) = 25.63 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
72. Peterson's Antiquities currently has a 31 day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, decreases its inventory period by 3 days, and decreases its payables period by 4 days. What will the length of the cash cycle be after these changes?
A. 22 days
B. 23 days
C. 29 days
D. 30 days
E. 31 days
Cash cycle = 31 - 2 - 3 + 4 = 30 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
73. A company currently has a 48 day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, increases its inventory period by 3 days, and increases its payables period by 4 days. What will the length of the cash cycle be after these changes?
A. 42 days
B. 43 days
C. 45 days
D. 47 days
E. 49 days
Cash cycle = 48 - 2 + 3 - 4 = 45 days
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-1
Section: 18.2
Topic: Cash cycle
74. Tall Guys Clothing has a 45 day collection period. Sales for the next calendar year are estimated at $2,100, $1,600, $2,500 and $2,300, respectively, by quarter, starting with the first quarter of the year. Given this information, which one of the following statements is correct? Assume a year has 360 days.
A. The firm will collect $800 in Quarter 2.
B. The accounts receivable balance at the beginning of Quarter 4 will be $1,150.
C. The firm will collect $2,000 in Quarter 3.
D. The firm will have an accounts receivable balance of $2,300 at the end of the year.
E. The firm will collect a total of $2,400 in Quarter 4.
Q4 collections = 45/90 ($2,500) + 45/90 ($2,300) = $2,400
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
75. Forest Gardens, Inc., has a beginning receivables balance on February 1 of $730. Sales for February through May are $720, $760, $820, and $850, respectively. The accounts receivable period is 30 days. What is the amount of the April collections? Assume a year has 360 days.
A. $720
B. $760
C. $790
D. $820
E. $850
In April, the firm would collect March sales of $760.
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
76. Davis and Davis have expected sales of $490, $465, $450, and $570 for the months of January through April, respectively. The accounts receivable period is 28 days. What is the accounts receivable balance at the end of March? Assume a year has 360 days.
A. $420
B. $426
C. $440
D. $450
E. $482
March ending receivables = (28/30) $450 = $420
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Accounts receivable balance
77. The Athletic Sports Store has a beginning receivables balance on January 1 of $410. Sales for January through April are $440, $460, $690, and $720, respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of April? Assume a year has 360 days.
A. $410
B. $440
C. $460
D. $690
E. $720
April collections = February sales = $460
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
78. Breakwater Aquatics has a 45 day accounts receivable period. The estimated quarterly sales for this year, starting with the first quarter, are $6,800, $7,100, $8,200, and $6,400, respectively. What is the accounts receivable balance at the beginning of the third quarter? Assume a year has 360 days.
A. $3,400
B. $3,550
C. $6,950
D. $7,100
E. $7,650
A/R Begin Q3 = A/R End Q2 = (45/90) $7,100 = $3,550
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Accounts receivable balance
79. The Dog House expects sales of $560, $650, $670, and $610 for the months of May through August, respectively. The firm collects 20 percent of sales in the month of sale, 70 percent in the month following the month of sale, and 8 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of August?
A. $621
B. $628
C. $633
D. $639
E. $643
August collections = 0.20($610) + 0.70($670) + 0.08($650) = $643
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash collections
80. The Wire House purchases its inventory one quarter prior to the quarter of sale. The purchase price is 55 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of quarter one is $62,000. What is the amount of the expected disbursements for quarter two given the following expected quarterly sales?
A. $20,500
B. $21,725
C. $24,250
D. $26,000
E. $26,675
Q2 disbursements = [(45/90) (0.55) $36,000] + [(45/90) (0.55) $43,000] = $21,725
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash disbursements
81. Nadine's Boutique has a 30 day accounts payable period. The firm has expected quarterly sales of $1,100, $1,400, $1,700, and $2,100, respectively, for next year. The quarterly cost of goods sold is equal to 68 percent of the next quarter's sales. The firm has a beginning accounts payable balance of $550 as of Quarter 1. What is the amount of the projected cash disbursements for accounts payable for Quarter 3 of the next year? Assume a year has 360 days.
A. $1,195
B. $1,208
C. $1,247
D. $1,337
E. $1,380
Disbursement = [(30/90) ´ (0.68 ´ $1,700)] + [(60/90) ´ (0.68 ´ $2,100)] = $1,337
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash disbursements
82. Kid's Delight expects to sell $8,200 worth of toys in December, $3,700 worth in January, $4,400 in February, and $6,100 in March. The wholesale cost is 72 percent of the retail price. The firm has a receivables period of 30 days, a payables period of 60 days, and buys inventory one month prior to selling it. Which one of the following statements is correct?
A. The February payments to suppliers are $2,992.
B. The March collections are $3,700.
C. The accounts receivable balance at the end of March is $4,400.
D. The purchases for February are $3,168.
E. The accounts payable balance at the end of January is $5,832.
January ending A/P balance = 0.72($3,700) + 0.72($4,400) = $5,832
AACSB: Analytic
Bloom's: Application
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.4
Topic: Accounts payable balance
83. As of the beginning of the quarter, Swenson's, Inc. had a cash balance of $460. During the quarter, the company collected $520 from customers and paid suppliers $360. The company also paid an interest payment of $20 and a tax payment of $110. In addition, the company repaid $140 on its long-term debt. What is Callahan's cash balance at the end of the quarter?
A. -$110
B. $320
C. $350
D. $430
E. $490
Cash balance = $460 + $520 - $360 - $20 - $110 - $140 = $350
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash balance
84. On May 1, your firm had a beginning cash balance of $175. Your sales for April were $430 and your May sales were $480. During May, you had cash expenses of $110 and payments on your accounts payable of $290. Your accounts receivable period is 30 days. What is your firm's beginning cash balance on June 1?
A. $145
B. $155
C. $205
D. $215
E. $265
Cash balance = $175 - $110 - $290 + $430 = $205
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash balance
85. The Mish Mash Store has a beginning cash balance of $440 on March 1. The firm has projected sales of $610 in February, $680 in March, and $740 in April. The cost of goods sold is equal to 70 percent of sales. Goods are purchased one month prior to the month of sale. The accounts payable period is 30 days and the accounts receivable period is 10 days. The firm has monthly cash expenses of $160. What is the projected ending cash balance at the end of March? Assume every month has 30 days.
A. $258
B. $461
C. $507
D. $567
E. $621
March collections = (10/30) $610 + (20/30) $680 = $657
March disbursements for payables = 0.70 ($680) = $476
March ending cash balance = $440 + $657 - $476 - $160 = $461
AACSB: Analytic
Bloom's: Application
Difficulty: Basic
Learning Objective: 18-3
Section: 18.4
Topic: Cash balance
86. Fancy Footwear has a line of credit with a local bank in the amount of $80,000. The loan agreement calls for interest of 7 percent with a compensating balance of 5 percent, which is based on the total amount borrowed. The compensating balance will be deposited into an interest-free account. What is the effective interest rate on the loan if the firm needs to borrow $75,000 for one year to cover operating expenses?
A. 7.37 percent
B. 7.43 percent
C. 7.56 percent
D. 8.17 percent
E. 8.33 percent
Amount borrowed = $75,000/(1 - 0.05) = $78,947.37
Annual interest = $78,947.37 ´ 0.07 = $5,526.32
Effective interest rate = $5,526.32/$75,000 = 7.37 percent
AACSB: Analytic
Bloom's: Analysis
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.5
Topic: Interest rate with compensating balance
87. Juno Industrial Supply has a $150,000 line of credit with a 6.5 percent interest rate. The loan agreement requires a 2 percent compensating balance, which is based on the total amount borrowed, and which will be held in an interest-free account. What is the effective interest rate if the firm borrows $90,000 on the line of credit for one year?
A. 6.42 percent
B. 6.47 percent
C. 6.50 percent
D. 6.58 percent
E. 6.63 percent
Amount borrowed = $90,000/(1 - 0.02) = $91,836.73
Annual interest = $91,836.73 ´ 0.065 = $5,969.39
Effective interest rate = $5,969.39/$90,000 = 6.63 percent
AACSB: Analytic
Bloom's: Analysis
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.5
Topic: Interest rate with compensating balance
88. Rachel's has a $50,000 line of credit with Uptown Bank. The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent. The compensating balance is based on the total amount borrowed and will be held in an interest-free account. What is the effective annual interest rate if the firm borrows $35,000 for one year?
A. 7.76 percent
B. 8.00 percent
C. 8.17 percent
D. 8.33 percent
E. 8.42 percent
Amount borrowed = $35,000/(1 - 0.04) = $36,458.33
Annual interest = $36,458.33 ´ 0.08 = $2,916.67
Effective interest rate = $2,916.67/$35,000 = 8.33 percent
AACSB: Analytic
Bloom's: Analysis
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.5
Topic: Effective interest with compensating balance
89. The Delta Fish Hatchery factors its accounts receivables immediately at a 1.5 percent discount. The average collection period is 34 days. Assume that all accounts are collected in full. What is the effective annual interest rate on this arrangement?
A. 17.61 percent
B. 18.20 percent
C. 18.36 percent
D. 18.78 percent
E. 19.04 percent
Interest rate for 34 days = 0.015/(1 - 0.015) = 0.015228
Number of periods per year = 365/34 = 10.735294
Effective annual rate = 1.01522810.735294 - 1 = 17.61 percent
AACSB: Analytic
Bloom's: Analysis
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.5
Topic: Accounts receivable factoring
90. New York Bank provides Food Canning, Inc. a $250,000 line of credit with an interest rate of 1.75 percent per quarter. The credit line also requires that 1 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Food Canning, Inc.'s short-term investments are paying 1.2 percent per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.
A. 4.76 percent
B. 4.80 percent
C. 4.89 percent
D. 7.00 percent
E. 7.27 percent
Effective annual interest = (1.012)4 - 1 = 4.89 percent
AACSB: Analytic
Bloom's: Analysis
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.5
Topic: Rate on unused credit line
91. The Sports Store has a $100,000 line of credit with City Bank. The loan agreement requires that 2 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 1.4 percent per quarter. The Sport 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 Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or invested use compound interest.
A. 5.72 percent
B. 5.76 percent
C. 6.00 percent
D. 6.08 percent
E. 6.14 percent
Effective annual interest = (1.014)4 - 1 = 5.72 percent
AACSB: Analytic
Bloom's: Analysis
Difficulty: Intermediate
Learning Objective: 18-3
Section: 18.5
Topic: Rate on unused credit line
92. Your bank offers you a $40,000 line of credit with an interest rate of 1.75 percent per quarter. The loan agreement also requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 0.20 percent per month. What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume any funds borrowed or invested use compound interest.
A. 2.00 percent
B. 2.43 percent
C. 3.18 percent
D. 7.00 percent
E. 7.19 percent
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