Posted: November 23rd, 2016
A commercial loan extended to CIBER LAND Corporation for $2.5 million assesses an interest charge of $350,000 up front. Using the discount loan method of calculating loan rates, what is the effective interest rate on this loan? Suppose that instead of deducting the interest owed up front, the company s lender agrees to extend the full $2.5 million and add the amount of interest owed to the face amount of CIBER s note. What, then, is the loan s effective interest rate?
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