The Somerset Bank offered Blakemore Inc.the following loan alternatives in response to its request for a $75,000,1-year loan. Altermative 1: $ \quad $ 7 percent discaunt interest, winth a 10 percent campensating balance
Alternetive 2 : $ \quad $ 8 percent simple interest, writh interest paid monthly.
What is the effective annual rate on the cheaper loan?

Question

Quizplus · Accepted Answer

Alternative 1: Face amount of loan = $75,000/(1 F1F1F1S1F1F1F10 0.07 F1F1F1S1F1F1F10 0.10)= $90,361.45 F1F1F1S1F1F1F10 $90,361. 11ea42d0_c0af_835e_9abf_9f0d003c3583_TB2090_00 To solve for the loan's effective rate enter N = 1,PV = 75,000,PMT = 0,FV = F1F1F1S1F1F1F1081,325,and solve for I/YR = 8.43%.Alternative 2: EAR = (1 + 0.08/12)¹² F1F1F1S1F1F1F10 1 = 8.30%.

The Somerset Bank Offered Blakemore Inc \quad 7 Percent Discaunt Interest, Winth a 10 Percent Campensating Balance

The Somerset Bank Offered Blakemore Inc $\quad$ 7 Percent Discaunt Interest, Winth a 10 Percent Campensating Balance