1. Firm TLV Inc. can borrow $21 thousand for four months from a bank at an APR (Annual Percentage Rate) of 7.6%. The loan has a loan origination fee of 2.1% on the principal of the loan. The bank also requires that TLV Inc. keep an amount of 8% of the face value of the loan in a compensating balance account as long as the loan is outstanding. The bank pays interests of 0.36% APR with four months compounding on the compensating balance account. Calculate the effective annual rate (EAR) of this loan. Keep two decimal places, e.g. 9.99%.

(5 marks)

1. Firm NYC Inc. can purchase goods from its supplier on terms of 1.5/30, net 60. What do these terms say in words? Use you own words

(2 marks)

2. Calculate the effective annual rate (EAR) if NYC chooses not to take advantage of the trade discount offered. Keep two decimal places, e.g. 9.99%.