Consider two loans with one-year maturities and identical face values: an 8% loan with a 1% loan

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Consider two loans with one-year maturities and identical face values: an 8% loan with a 1% loan origination fee and an 8% loan with a 5% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate? Why?

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Fundamentals of Corporate Finance

ISBN: 978-0132148238

2nd edition

Authors: Berk, DeMarzo, Harford

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Question Posted: Jan 14, 2012 02:17 AM

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Consider two loans with one-year maturities and identical face values: an 8% loan with a 1% loan

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Plan Calculate the effective annual cost of each loan Select the loan w...View the full answer

Fundamentals of Corporate Finance

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