Steaks Galore Needs to Arrange Financing for Its Expansion Program

question 7

Multiple Choice

Steaks Galore needs to arrange financing for its expansion program.One bank offers to lend the required $1,000,000 on a loan which requires interest to be paid at the end of each quarter.The quoted rate is 10 percent,and the principal must be repaid at the end of the year.A second lender offers 9 percent,daily compounding (365-day year) ,with interest and principal due at the end of the year.What is the difference in the effective annual rates (EFF%) charged by the two banks?

• A) 0.31%
• B) 0.53%
• C) 0.75%
• D) 0.96%
• E) 1.25%

---

Definitions:

Covert Collusion

An implicit, non-public agreement between firms to fix prices, limit production, or divide markets, without explicit communication.

Allocative Efficiency

A state of the economy where resources are allocated in a way that maximizes the overall benefit to society.

Productive Efficiency

Occurs when a good or service is produced at the lowest possible cost, utilizing all resources efficiently.

Cartel

A formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product geographically.