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Your firm needs to raise some cash for 6 months. You can pay all loan interests once at the time of maturity. There are four
Your firm needs to raise some cash for 6 months. You can pay all loan interests once at the time of maturity. There are four options available. Find which option corresponds to the lowest EAF under monthly compounding. Answers should be expressed as percentage point with 2 decimal places (e.g., EAR = 4.25\%) (i) bank loan of $100,000 with 6% APR and 1% origination fee, deducted from the principal (i.e., you receive $99 for every $100 borrowed, but you must pay interests on the $100 ). (ii) A bank loan of $100,000 with 6\% APR and a 10% compensating balance kept in a noninterest-bearing account (iii) A bank loan of $100,000 with 4% APR and a 15% compensating balance kept in an account with 2% APR
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