The financial managers at Capel Corporation are arranging the financing for working capital requirements for the upcoming year. Capels local bank offers a discount interest loan at a quoted (simple) interest rate of 4.00%. With a discount interest loan, interest is payable up front, and the actual amount received is less than the face amount of the loan. Suppose Capel applies for a $200,000 loan with a nine-month term.

Calculate the interest payment, the amount of cash received, the annual percentage rate (APR), and the effective annual rate (EAR) of this loan.

	Value
Interest payment
Amount of cash received
Annual percentage rate (APR)
Effective annual rate (EAR)

What is the nine-month rate if the bank charges a $100 processing fee?

3.05%

3.15%

2.84%

4.12%