In a line of credit arrangement, a firm pays interest on ________.
A) the full line of credit
B) the total line of credit
C) only the amount actually borrowed
D) only the amount actually borrowed and commitment fees on any unused portion of the loan

Question

Quizplus · Accepted Answer

In a line of credit arrangement, the firm is only charged interest on the amount that it actually borrows, not on the full or total amount of the line of credit. This is advantageous to the firm because it allows it to keep funds available for future borrowing without incurring unnecessary interest charges. Additionally, the firm may only be charged commitment fees on any unused portion of the line of credit.

In a Line of Credit Arrangement, a Firm Pays Interest