Matt's Machine Company has borrowed $10 million for four months at 5.5% APR compounded monthly, using inventory stored in a field warehouse as collateral. The warehouse fee is 0.5%, payable at the beginning of the loan. What is Matt's EAR?

Question

Quizplus · Accepted Answer

B) Using a financial calculator: PV = $10,000,000, I =5.5 / 12 = 0.4583, N = 4; compute FV = $10,184,598; amount received = $10,000,000 - $50,000 = $9,950,000; actual rate = ($10,184,598 - $10,000,000) / 9,950,000 = 2.36%; EAR = 1.0236³- 1 = .0724; EAR = 7.24%

Matt's Machine Company Has Borrowed $10 Million for Four Months