Question
Asked Oct 28, 2019
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Your firm is considering a one-year loan for $522,000. The fees are 2% of the loan amount and the interest rate is 4.3%. First, compute the net amount of funds from the loan. Based on this net amount, what is the true interest rate of the loan? 

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Expert Answer

Step 1

The lender deducts the fees upfront while disbursing the money, so effectivly the borrower get the proceeds net of processing fees.

Step 2

Hence, the net amount of funds from the loan = Loan am...

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Interest Rate Model

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