On l January 20X8, a borrower arranged a \($500,000\) three-year 2% note payable, with interest paid at the end of each loan year. There was an upfront fee of \($53,460,\) which was deducted from the cash proceeds of the note on 1 January 20X8.

Required:

1. Calculate the effective interest rate associated with the loan. What net amount is received on 1 January 20X8?

2. Calculate the interest expense reported by the borrower for each year of the loan.