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Keegan received $25,000 by way of an employee loan at a rate of 1% interest when the CRA's prescribed rate of interest was 3%.

Keegan received $25,000 by way of an employee loan at a rate of 1% interest when the CRA's prescribed rate of interest was 3%. Keegan is in a 40% income tax bracket What is the actual cost (rate) of Keegan's loan? (Assume there are no fluctuations in the prescribed rate of interest.)

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