Use the Following Information to Answer the Question(s)below

question 13

Multiple Choice

Use the following information to answer the question(s) below.
Taggart Transcontinental needs a $100,000 loan for the next 30 days.Taggart has three alternatives available:
Alternative #1: Forgo the discount on its trade credit agreement that offers terms of 2/5 net 35.
Alternative #2: Borrow the money from Bank A,which has offered to lend the firm $100,000 for one month at
an APR of 9%.The bank will require a (no-interest) compensating balance of 10% of the face-value of the loan and will charge a $200 loan origination fee,which means that Taggart must borrow even more than the $100,000 they need.
Alternative #3: Borrow the money from Bank B,which has offered to lend the firm $100,000 for one month at an APR of 12%.The loan has a 1% origination fee.
-The effective annual rate for Taggart if they choose alternative #1 is closest to:

• A)13.9%.
• B)18.8%.
• C)27.0%.
• D)27.9%.

---

Definitions:

Called Bonds

Bonds that have been redeemed before their maturity date by the issuer, usually at a predefined call price.

Outstanding Bond Issues

Bonds that have been issued and are currently in circulation, yet to be repaid by the issuer.

Close Competitor

A company in the same industry offering similar products or services that directly competes with another company.

Stable Market Value

Refers to assets or securities that demonstrate low volatility and maintain their value over time in various market conditions.