## (Solved by Expert Tutors)4)Dr. Ruth is going to borrow \$6,500 to help write a book. The loan

4)

Dr. Ruth is going to borrow \$6,500 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 7 percent and LIBOR 1.5 percent less. Also assume there will be a \$55 transaction fee with LIBOR (this amount must be added to the interest cost with LIBOR).

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 a. What is the effective interest rate on the LIBOR loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

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 ??Effective interest rate %??

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b.

Which loan has the lower effective interest cost?

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 LIBOR

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This question was answered on: Apr 19, 2020

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