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Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for one year and the money can be borrowed at
Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for one year and the money can be borrowed at either the prime rate or the LIBOR rate. Assume the prime rate is 6 percent and LIBOR 1.5 percent less. Also assume there will be a $40 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? LIBOR Prime
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