Question: Consider two loans with a 1-year maturity and identical face values: a(n) 7.8 % loan with a 0.99% loan origination fee and a(n) 7.8% loan

Consider two loans with a 1-year maturity and identical face values: a(n) 7.8 % loan with a 0.99% loan origination fee and a(n) 7.8% loan with a 5.1% (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate (EAR)? Why?

The EAR in the first case is ____%.

(Round to one decimal place.)

The EAR in the second case is ____%.

(Round to one decimal place.)

Which loan would cost the most? ______.

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