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 end of the loan. What is Matt's EAR?

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Quizplus · Accepted Answer

B) Using a financial calculator: PV = $10,000,000, I =5.5 / 12 = 0.4583, N = 4; compute FV = $10,184,597; add warehouse fee = $50,000; amount received = $10,000,000; actual rate = $10,234,597 / $10,000,000 = 1.02346; EAR = 1.02346³- 1 = .0720; EAR = 7.20%

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