What is the ear

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Reference no: EM133118170

Your firm needs to raise some cash for 6 months. It will pay all interest owed at the time of maturity. There are four options available.

1. $100,000 bank loan with 6% APR and 1% origination fee, deducted from the principal

2. $100,000 bank loan with 6% APR and a 10% compensating balance kept in a non-interest-bearing account

3. $100,000 bank loan with 4% APR and a 15% compensating balance kept in an account with 2% APR

4. Commercial paper with $100,000 face value issued at $97,000

What is the EAR (with semiannual compounding) for

- Option 1?

- Option 2?

- Option 3?

- Option 4?

- Which option should the firm choose?

Reference no: EM133118170

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