Intro

Urban Nursery wants to borrow for one year to finance an expansion. Its bank

offer a one$-$year loan with a simple interest rate of $15\%$ and no compensating

balance requirement, or alternatively a discount interest loan with an interest rate

of $11\%$ and a $20\%$ compensating balance requirement. The company keeps only

negligible balances in its checking account.

Part $1$

What is the effective annual rate $($EAR$)$ of the simple interest loan?

Correct

Since it's a one$-$year loan, the quoted interest rate is also the effective annual rate

$($and the annual percentage rate$)$:

EAR$=0\mathrm{.}15$

Part $2$