BoGo Textbooks is evaluating two options for

funding its working capital during the next

year. Option 1 is borrowing from the bank using

a 180-day discount interest loan, which has

a quoted interest rate equal to 8 percent and

requires a 20 percent compensating balance.

BoGo normally maintains an average checking

account balance of $10,000. Option 2 is to issue

180-day commercial paper, which has an annual

interest equal to 9 percent and requires BoGo

to pay a transactions fee equal to 0.3 percent.

If the amount borrowed with either option is

$200,000, which one should BoGo choose?