General Manufacturing Wants to Borrow $1 Million for Three Months

question 75

Multiple Choice

General Manufacturing wants to borrow $1 million for three months. It uses its inventory as collateral for an 11% (APR compounded monthly) loan under a warehouse arrangement where the warehouse fee is $12,000 paid at the start of the three months. What is the EAR of this loan for General Manufacturing?

• A) 2.8%
• B) 4.0%
• C) 17.1%
• D) 24.4%

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