Consider two loans with one-year maturities and identical face values: a(n) 7.6 % loan with a 0.96 % loan origination fee and a(n) 7.6 % loan with a 5.1 % (no-interest) compensating balance requirement. What is the effective annual rate (EAR) associated with each loan? Which loan would have the highest EAR and why? The EAR in the first case is nothing%. (Round to one decimal place.) The EAR in the second case is nothing%. (Round to one decimal place.) Which loan would have the highest EAR and why? (Select the best choice below.) A. Both loans will cost the same since a 0.96 % loan origination fee is equivalent to a 5.1 % (no-interest) compensating balance requirement. B. It cannot be determined since we do not have the face value of the loan. C. The loan with the origination fee would cost the most since the loan origination fee is just another form of interest. D. The loan with the compensating balance would cost the most since you do not get to use the entire amount.
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