The Ohio Valley Steel Corporation has borrowed $4.9 million for one month at a stated annual rate of 9.3%, using inventory stored in a field warehouse as collateral. The warehouser charges a $5,500 fee, payable at the end of the month. What is the effective annual rate of thisloan?

(Select from thedrop-down menus.)

The monthly interest rate is (Select the correct answer, as I have typed out the choices.

0.875%

0.975%

0.775%

, so Ohio Valley Steel must pay

$42,875

$47,775

$37,975

in interest on the loan. Combining this with the $5,500 warehouser fee makes the monthly cost of the loan

$53,275

$43,475

$48,375

. Since the fee is paid at the end of themonth, Ohio Valley Steel has use of the full $4,900,000 for the month. The interest rate per period is

0.887%

0.987%

1.087%

. There are 12 months in ayear, so the effective annual rate is

13.9%

11.2%

12.5%

.