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Suppose you are the CEO of a company that is planning to acquire a small startup firm. To finance this operation, you are negotiating with
Suppose you are the CEO of a company that is planning to acquire a small startup firm. To finance this operation, you are negotiating with two other companies a direct loan of $1,000,000 to be repaid in 3 years. Company A offers to make this loan at a monthly rate of 1 percent; company B offers to make the loan a an annually, continuously compounded rate of 12 percent. As a good economist your goal is to minimize your cost of borrowing. Which company should you borrow from? Why? (Show work)
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