Luther Industries is offered a $1 million loan for four months at an APR of 9%.If Luther's bank requires that the firm maintain a compensating balance equal to 10% of the loan amount in a non-interest-bearing account,then the effective annual rate (EAR)for this loan is closest to:

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The effective annual rate (EAR) for this loan is closest to 10.34%.The EAR is the annual rate that would produce the same amount of interest as the stated APR, taking into account the effect of compounding. In this case, the EAR can be calculated using the following formula:EAR = (1 + APR/n)^n - 1where:APR is the annual percentage raten is the number of compounding periods per yearIn this case, the APR is 9% and the loan is for four months, so n = 12/4 = 3. Plugging these values into the formula, we get:EAR = (1 + 0.09/3)^3 - 1 = 0.1034Therefore, the EAR for this loan is closest to 10.34%.

Luther Industries Is Offered a $1 Million Loan for Four