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.)

Multiple Choice

• 1%

• 1.8%

• 1.2%

• 2%