Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.If this loan has an origination fee of 1%,then the effective annual rate (EAR)for this loan is closest to:

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The effective annual rate (EAR) can be calculated by considering both the interest rate and the effect of the origination fee. The APR is 9%, but since the loan is only for four months, the interest for the term is 9% * (4/12) = 3%. The origination fee is 1% of the loan amount, which is also an upfront cost. Therefore, the total cost for four months is 3% (interest) + 1% (fee) = 4%. To annualize this 4-month rate to an EAR, we use the formula for EAR = (1 + periodic rate)^(number of periods per year) - 1. Here, the periodic rate is 4% or 0.04 for the 4-month period, and there are 3 such periods in a year (12 months / 4 months). EAR = (1 + 0.04)^3 - 1 ≈ 12.6%.

Luther Industries Is Offered a $1 Million Dollar Loan for Four