State Federal Bank (SFB) offers two borrowing options to businesses: 

(1) a simple interest loan with a 10 percent interest rate and no compensating balance and 

(2) a discount interest loan with a quoted rate equal to 8 percent that requires a 20 percent compensating balance. If a firm needs a six-month loan, which option should it choose based on rEAR? Assume the firm normally maintains a negligible checking account balance at the bank. Assume there are 360 days in a year. Do not round intermediate calculations. Round your answers to two decimal places.

Option 1, rEAR: %

Option 2, rEAR: %

Based on rEAR, Select Option 1 or Option 2

Answer rating: 100% (QA)

Sure here is how you calculate the rEAR real effective annual rate First we need to understand the t... View the full answer