Hammond Motors is considering using a public warehouse loan as part of its short-term financing.The firm will require a loan of $2 million for three months.Interest on the loan will be 12% (APR,compounded quarterly)to be paid at the end of the quarter.The warehouse charges 1% of the face value of the loan,payable at the beginning of the quarter.The effect annual rate on this loan is closest to:

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D)The quarterly interest rate is 12%/4 = 3%.At the end of the quarter Hammond needs to borrow $2,000,000 × 1.01 = $2,020,000 to cover the warehouse fee and they will owe $2,020,000 million × 1.03 = 2,080,600 at the end of the quarter.The actual quarter interest rate paid is 11ea7cce_3c3a_6b2b_928c_7f0e144c2eb6_TB1626_11 - 1 = 0.0403 or 4.03%,expressing this as an EAR gives us (1 + .0403)⁴ - 1 = 0.171209 or 17.121%

Hammond Motors Is Considering Using a Public Warehouse Loan as Part