Which of the following one-year $ 1000 bank loans offers the lowest effective annual rate?

a. A loan with an APR of 6.3 %, compounded monthly. b. A loan with an APR of 6.3 %, compounded annually, that also has a compensating balance requirement of 10.2 % (on which no interest is paid), or c. A loan with an APR of 6.3 %, compounded annually, that has a 1.3 % loan origination fee.

a. A loan with an APR of 6.3 %, compounded monthly

Since the APR is 6.3%, the monthly rate is _____? This translates to an effective annual rate

of______?

b. A loan with an APR of 6.3 %, compounded annually, that also has a compensating balance requirement of 10.2 % (on which no interest is paid).

The compensating balance is______? Therefore, the borrower will have use of only_______

of the $ 1,000?

The interest is_______? The interest rate per period is______?

Since this alternative assumes annual compounding, the effective annual rate is_______; as well.

c. A loan with an APR of 6.3 %, compounded annually, that has a 1.3 % loan origination fee.

The interest expense is_______? and the loan origination fee is_______? The loan origination fee reduces the usable proceeds of the loan to_______; because it is paid at the beginning of the loan. The interest rate per period is_______?

Since the loan is compounded annually, the effective annual rate is________?

Which option offers the lowest effective annual cost, A, B, or C?