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What is the effective annual rate

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Stephens Distillers, Inc. (SDI) makes fine quality spirits that need to be aged, meaning that investment is tied up for several years. SDI has borrowed $10.0 million through a warehouse agreement to fund its operations while the spirits age. The loan is for 1 year and is rolled-over every year and has a stated APR of 9% (compounded monthly). SDI is collateralizing the loan with inventory that will be aged at a field warehouse. The warehouse charges a 1.SYo warehouse fee payable when the loan is due in one year. What is the effective annual rate of the loan? What is the new effective annual rate of the loan if the warehouse fee must be paid upfront instead at loan maturity?

Reference no: EM133113777

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