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    "url": "\/study-help\/questions\/consider-two-loans-with-a1year-maturity-and-identical-facevalues-an-2525603",
    "question_creation_date_js": "2024-06-09T16:27:04-04:00",
    "question_creation_date": "Jun 09, 2024 04:27 PM",
    "meta_title": "[Solved] Consider two loans with a1-year maturity | SolutionInn",
    "meta_description": "Answer of - Consider two loans with a1-year maturity and identical facevalues: a(n) 7.5 % loan with a 1.04 % loan origination fee | SolutionInn",
    "meta_keywords": "two,loans,a1-year,maturity,identical,facevalues,n,7.5,loan,1.04,origination,fee",
    "question_title_h1": "Consider two loans with a1-year maturity and identical facevalues: a(n) 7.5 % loan with a 1.04 % loan origination fee anda(n) 7.5 % loan with",
    "question_title": "Consider two loans with a1-year maturity and identical facevalues: a(n) 7.5 %",
    "question_title_for_js_snippet": "Consider two loans with a1 year maturity and identical facevalues  a(n) 7 5   loan with a 1 04   loan origination fee anda(n) 7 5   loan with a 5 3   (no interest) compensating balance requirement  Which loan would have the higher effective annual rate (EAR)  Why  The EAR in the first case is          (Round to one decimalplace ) The EAR in the second case is         (Round to one decimalplace ) Which loan would have the higher EAR andwhy  (Select the best choicebelow ) A  The loan with the compensating balance would cost the most since you do not get to use the entire amount  B  The loan with the origination fee would cost the most since the loan origination fee is just another form of interest  C  It cannot be determined since we do not have the face value of the loan  D  Both loans will cost the same since a 1 04   loan origination fee is equivalent to a 5 3   (no interest) compensating balance requirement ",
    "question_description": "<p><span>Consider two loans with a1-year maturity and identical facevalues: a(n) 7.5 % loan with a 1.04 % loan origination fee anda(n) 7.5 % loan with a 5.3 % (no-interest) compensating balance requirement. Which loan would have the higher effective annual rate (EAR)? Why?<\/span><\/p> <p> <\/p> <p><span>The EAR in the first case is ______%. <\/span><span>(Round to one decimalplace.)<\/span><\/p> <p> <\/p> <p><span>The EAR in the second case is _____%. <\/span><span>(Round to one decimalplace.)<\/span><\/p> <p> <\/p> <p><span>Which loan would have the higher EAR andwhy? <\/span><em> <\/em><span>(Select the best choicebelow.)<\/span><\/p> <p> <\/p> <p><strong>A. <\/strong><span>The loan with the compensating balance would cost the most since you do not get to use the entire amount.<\/span><\/p> <p><strong>B. <\/strong><span>The loan with the origination fee would cost the most since the loan origination fee is just another form of interest.<\/span><\/p> <p><strong>C. <\/strong><span>It cannot be determined since we do not have the face value of the loan.<\/span><\/p> <p><strong>D. <\/strong><span>Both loans will cost the same since a 1.04 % loan origination fee is equivalent to a 5.3 % (no-interest) compensating balance requirement.<\/span><\/p>",
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    "related_book": {
        "title": "Intermediate Accounting",
        "isbn": "978-0470613474, 470613475, 978-0470616314",
        "edition": "IFRS edition volume 2",
        "authors": "Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield",
        "cover_image": "https:\/\/dsd5zvtm8ll6.cloudfront.net\/si.question.images\/book_images\/255.jpg",
        "uri": "\/textbooks\/intermediate-accounting-ifrs-edition-volume-2-255",
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    "question_posted": "2024-06-09 16:27:04",
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            "name": "Consider two loans with a1-year maturity and identical facevalues: a(n) 7.5 %",
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