Please help Note, there isn\'t \"more information needed\" as flagged. The quest
ID: 2790913 • Letter: P
Question
Please help Note, there isn't "more information needed" as flagged. The question only displays this information here You are looking at a one-year loan of $20,000. The interest rate on a one-year loan is quoted as 10.9 percent plus three points. What is the EAR of this loan? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual rate Is your answer affected by the loan amount? Affected Not affected Show transcribed image text View comments (1) Expert Answer Anonymous answered this 2,035 answers Was this answer helpful? Effective annul rate1(quoted rate/m)]m - 1 [I+(0.109 / 1)]1-1 =[1.0109 ] 1-1 0.109 or 10.9% Effective annual rate is not affected to loan amount. Comment >Explanation / Answer
Total LOan amount = $20,000
Annual Interest rate = 10.90%.
Annual Interest = $20,000 × 10.90%
= $2,180.
The lender charge 3 point as closing cost.
So, total closing cost = $20,000 × 3%
= $600
Total Net borrowing = $20,000 - $600
= $19,400
Effective cost of borrowing = $2,180 / $19,400
= 11.24%
Effective cost of borrowing is 11.24%.