Calculating the annual rate of interest for each

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Question - Frick & Frack Manufacturing is expanding its facilities and requires a bank loan of $3,000,000 for one year. The banker has offered a stated rate of 8% interest and has offered the company four different options, and management must decide what would be most suitable.

TASK - Compare each alternative by calculating the annual rate of interest for each.

Option #1: A simple 8% interest with a 8% compensating balance.

Option #2: Discounted interest.

Option #3: A 12-month installment loan

Option #4: Discounted interest with a 1% administration fee.

QUESTION: What option should management pick?

Reference no: EM132786493

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