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Alpha Corp

Finance

Alpha Corp. needs to take out a $600,000 loan from Payday Bank for the month of August. They are charged a rate of 15% APR and a required to maintain a 10% compensating balance. What is the EAR of this loan to Alpha?

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Computation of the EAR of the loan:-

EAR = (1+APR/n)^n-1

= (1+15%/12)^12-1

= 1.1608 - 1

= 16.08%

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