Hammond Motors Is Considering Using a Public Warehouse Loan as Part

question 35

Multiple Choice

Hammond Motors is considering using a public warehouse loan as part of its short-term financing.The firm will require a loan of $2 million for three months.Interest on the loan will be 12% (APR,compounded quarterly) to be paid at the end of the quarter.The warehouse charges 1% of the face value of the loan,payable at the beginning of the quarter.The effective annual rate on this loan is closest to:

• A)9.3%.
• B)11.3%.
• C)15.2%.
• D)17.1%.

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