The Luther Industries Wants to Borrow $1 Million for Two

question 23

Essay

The Luther Industries wants to borrow $1 million for two months. Using its inventory as collateral, it can obtain a 10% (APR) loan (compounded monthly). The lender requires that a warehouse arrangement be used. The warehouse fee is $10,000, payable at the end of the two months. Calculate the effective annual rate of this loan for Row Cannery.

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Definitions:

Framingham Heart Study

A long-term, ongoing cardiovascular study on residents of the Framingham, Massachusetts area, initiated in 1948 to investigate the factors and characteristics that contribute to cardiovascular disease.

Cigarette Smoking

The act of inhaling and exhaling the smoke of burning tobacco encased in cigarettes, associated with numerous health risks.

Exercise

Physical activities that are planned, structured, and repetitive for the purpose of conditioning any part of the body, to improve health and maintain fitness.

Human Development

The multidisciplinary study of how people change and grow over the course of their life, including physical, cognitive, social, and emotional development.