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

question 36

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 #3 is closest to:

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

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Definitions:

Simple Events

Events in probability that consist of a single outcome and cannot be broken down into simpler components.

Individual Outcome

The result or final state of a single observation or experiment, which can vary between instances in a study or trial.

Constitute

To compose or form something, often used in a legal or formal context to indicate the components that make up a whole.

Probabilities

Measures the likelihood of an event occurring, ranging from 0 to 1.