Winnipeg Washing Machines wishes to borrow $1.5 million for one month.Using its inventory as collateral,it can obtain a 10% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $8,500,payable at the end of the month.What is the firm's EAR for this loan?

Question

Quizplus · Accepted Answer

The EAR is calculated as (1 + APR/12)^12 - 1 = (1 + 0.1/12)^12 - 1 = 0.182 or 18.2%.

Winnipeg Washing Machines Wishes to Borrow $1