Which of the following financing arrangements provides the lowest effective annual cost to the borrower? Arrangement #1:

Which of the following financing arrangements provides the lowest effective annual cost to the borrower?

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Arrangement #1: Commercial paper with a maturity of 91 days sold at a 14% discount from its face value. Arrangement #2: A bank loan with no compensating balance, but with discount interest of 14%. Arrangement #3: A one-year bank loan with a 10% compensating balance and 5% single payment interest.