Urban Nursery wants to borrow for one year to finance an expansion. Its bank offer a one-year loan with a simple interest rate of 14% and no compensating balance requirement, or alternatively a discount interest loan with an interest rate of 9% and a 30% compensating balance requirement. The company keeps only negligible balances in its checking account. 

a. What is the effective annual rate (EAR) of the simple interest loan?

 

b. What is the effective annual rate (EAR) of the discount interest loan?

 

 

 

Answer rating: 100% (QA)

Effective Annual Rates EAR We need to calculate the EAR for both loan options to determine the true ... View the full answer