Barbie is going to borrow $5,000 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 11 percent and LIBOR 1.5 percent less. Also assume there will be a $45 transaction fee with LIBOR (amount must be added to the interest cost with LIBOR). Which loan has the lower effective interest cost?
Barbie is going to borrow $5,000 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 11 percent and LIBOR 1.5 percent less. Also assume there will be a $45 transaction fee with LIBOR (amount must be added to the interest cost with LIBOR). Which loan has the lower effective interest cost?
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 14P
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Barbie is going to borrow $5,000 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 11 percent and LIBOR 1.5 percent less. Also assume there will be a $45 transaction fee with LIBOR (amount must be added to the interest cost with LIBOR). Which loan has the lower effective interest cost?
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