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What is the effective rate of a 3-month discounted loan borrowing of 4 million if the interest rate is 10 percent? a) some answer given b) 10
What is the effective rate of a 3-month discounted loan borrowing of 4 million if the interest rate is 10 percent?
a) some answer given
b) 10.25%
c) 11.11%
d) 10.38%
Expert Solution
Computation of the effective interest rate (EAR):-
EAR = (1+rate/n)^n-1
Here, n = 4 periods (quarterly)
EAR = (1+10%/4)^4-1
= 1.1038 - 1
= 10.38%
Hence, the correct option is d) 10.38%
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