Which of the followingone-year $1,000 bank loans offers the lowest effective annualrate?

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

b. A loan with an APR of 6.3 % compoundedannually, that also has a compensating balance requirement of 9.7% (on which no interest ispaid).

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

a. A loan with an APR of 6.3 %, compounded monthly.(Select from thedrop-down menus.)

Since the APR is 6.3 %, the monthly rate is _______(Answer). This translates to an effective annual rate of _______(Answer)

b. A loan with an APR of 6.3 % compoundedannually, that also has a compensating balance requirement of 9.7 %

The compensating balance is _______(Answer). Therefore, the borrower will have use of only _____(Answer) of the $$1,000. The interest is _________(Answer). The interest rate per period is ________(Answer). Since this alternative assumes annualcompounding, the effective annual rate is ______(Answer) as well.

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

The interest expense is _____(Answer), and the loan origination fee is _________(Answer). The loan origination fee reduces the usable proceeds of the loan to ______(Answer) because it is paid at the beginning of the loan. The interest rate per period is _________. Since the loan is compounded annually in thiscase, _________(Answer) is the effective annual rate.

Thus, alternative _____(Answer) offers the lowest effective annual cost.