Question: Assume that you can borrow $175,000 for one year from a local commercial bank. a. The bank loan officer offers you the loan if you

Assume that you can borrow $175,000 for one year from a local commercial bank.

a. The bank loan officer offers you the loan if you agree to pay $16,000 in interest plus repay the $175,000 at the end of one year.

b. As an alternative you could get a one-year discount loan at 9 percent.

c. Which loan would have the lower effective cost?

d. At what discount loan interest rate would you be indifferent between the two loans?

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