Tropic Fruit Preserves Wants to Borrow $4 Million for Two

question 71

Multiple Choice

Tropic Fruit Preserves wants to borrow $4 million for two months. It uses its inventory as collateral for a 15% (APR compounded monthly) loan under a warehouse arrangement where the warehouse fee is $18,000 paid at the end of the two months. What is the EAR of this loan for Tropic Fruit Preserves?

• A) 3.2%
• B) 7.8%
• C) 15.5%
• D) 19.2%

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Definitions:

Ginger Ale

A carbonated soft drink flavored with ginger, often used as a mixer in cocktails or consumed on its own for its taste and digestive benefits.

Ratio

A quantitative relationship between two numbers showing how many times the first number contains the second or vice versa.

Unknown Quantity

A variable or value in mathematics and science that is not known but can be solved for in an equation or experiment.

Proportion

A part or segment of a whole, often expressed as a fraction, percentage, or ratio.