Steaks Galore Needs to Arrange Financing for Its Expansion Program

question 34

Multiple Choice

Steaks Galore needs to arrange financing for its expansion program.One bank offers to lend the required R1,000,000 on a loan which requires interest to be paid at the end of each quarter.The quoted rate is 10 percent, and the principal must be repaid at the end of the year.A second lender offers 9 percent, daily compounding (365-day year) , with interest and principal due at the end of the year.What is the difference in the effective annual rates (EFF%) charged by the two banks?

• A) 0.31%
• B) 0.53%
• C) 0.75%
• D) 0.96%
• E) 1.25%

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Definitions:

Assumption of Risk

A legal doctrine that holds an individual to assume the risk of any harm arising from a dangerous activity they voluntarily participate in, limiting liability for the party offering the activity.

Contributory Negligence

A legal principle where the plaintiff's own negligence played a role in the harm they suffered, which can limit or prevent recovery from the defendant.

Privity

A legal doctrine ensuring that contracts are only enforceable by and against parties that are directly involved in the agreement.

Tort Theory

A framework in legal theory that addresses compensation for wrongs and harms caused by one party to another.