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Consider two loans with one-year maturities and identical face values: a(n) 8.4 % loan with a 1.03 % loan origination fee and a(n) 8.4 %
Consider two loans with one-year maturities and identical face values: a(n) 8.4 % loan with a 1.03 % loan origination fee and a(n) 8.4 % loan with a 5.2 % (no-interest) compensating balance requirement. What is the effective annual rate (EAR) associated with each loan? Which loan would have the highest EAR and why?
1 The EAR in the first case is %.
2. The EAR in this second case is
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