Rearden Metal has borrowed $4 million for three months at a stated annual rate of 8%,using inventory stored in a field warehouse as collateral.The warehouse charges a $10,000 fee,payable at the end of the month.The effect annual rate on this loan is closest to:

Question

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A)The quarterly interest rate is 8%/4 = 2%.At the end of the quarter Rearden will owe $4 million × 1.02 = 4,080,000 plus the warehouse fee of $10,000 for a total of $4,090,000.The actual quarterly interest rate paid is 11ea7cce_3c3a_1d0a_928c_83af68dfa7f7_TB1626_11 - 1 = 0.0225 or 2.25%,expressing this as an EAR gives us (1 + .0225)⁴ - 1 = 0.093083 or 9.30835%

Rearden Metal Has Borrowed $4 Million for Three Months at a Stated