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Dr. Ruth is going to borrow $4,000 to help write a book. The loan is for one year and the money can either be borrowed
Dr. Ruth is going to borrow $4,000 to help write a book. The loan is for one year and the money can either be borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 8 percent and LIBOR 1.0 percent less. Also assume there will be a $42 transaction fee with LIBOR (this amount must be added to the interest cost with LIBOR). a. What is the effective interest rate on the LIBOR loan?(Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Effective interest rate b. Which loan has the lower effective interest cost? Prime LIBOR
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