Steaks Galore Needs to Arrange Financing for Its Expansion Program

question 7

Multiple Choice

Steaks Galore needs to arrange financing for its expansion program.One bank offers to lend the required $1,000,000 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:

Limited Partnership

A business arrangement where one or more partners are liable only to the extent of their investment, while at least one partner has unlimited liability.

Certificate of Limited Partnership

A legal document filed with a state government to establish the existence of a limited partnership.

Secretary of State

Refers to a senior official in the federal government of the United States who heads the Department of State, primarily responsible for foreign affairs and diplomacy.

LLLPs

Limited Liability Limited Partnerships, a form of business organization that offers both general and limited partners limited liability protection.