3. Practice Problem 14-5

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State Federal Bank (SFB) offers two borrowing options to businesses: (1) a simple interest loan with a 9 percent interest rate and no compensating balance and (2) a discount interest loan with a quoted rate equal to 8 percent that requires a 15 percent compensating balance. If a firm needs a three-month loan, which option should it choose based on r_EAR? Assume the firm normally maintains a negligible checking account balance at the bank. Assume there are 360 days in a year. Do not round intermediate calculations. Round your answers to two decimal places.

Option 1, r_EAR: %

Option 2, r_EAR: %

Based on r_EAR, -Select-Option 1Option 2Item 3 should be chosen.