Consider two loans with a 1-year maturity and identical face values: a 6.7% loan with a 1.97% loan

origination fee and a 6.7% loan with a 4.7% (no-interest) compensating balance requirement. How

much would be the effective annual rate for each loan?

Select one:

a. 8.84% and 7.03% respectively.

b. 7.975% and 8.61% respectively.

c. 8.61% and 7.975% respectively.

d. 8.30% and 7.25% respectively.