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On April 1, 20x1, Sarah Davis received a $250,000 loan from her employer, Bounty Corporation. The actual rate of the loan was fixed at 3%,
On April 1, 20x1, Sarah Davis received a $250,000 loan from her employer, Bounty Corporation. The actual rate of the loan was fixed at 3%, and the going market rate at the time the loan was taken out was 6%.
Relevant Facts:
- $200,000 of the loan was made to allow Sarah to purchase a new condominium in downtown for her own inhabitation.
- $50,000 of the loan was made to allow Sarah to purchase shares in a corporation related to her employer.
- On January 25th of each year, Sarah writes a cheque to Bounty Corporation in payment of the interest incurred for the previous year.
- Principal repayments of $10,000 annually will commence at the end of 20x5.
| 1st | 2nd | 3rd | 4th |
Prescribed Rates: | 20x1 4% | 5% | 4% | 5% |
| 20x2 6% | 7% | 7% | 8% |
Required: Calculate Sarahs employment benefit on the $250,000 loan, for 20x2.
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