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Calculate the effective interest rate associated with loan

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Reference no: EM132930487

Problem - On 1 January 20X8, a borrower arranged a $1,000,000 three-year 2% bond payable, with interest paid annually each 31 December. There was an upfront fee of $106,920, which was deducted from the cash proceeds of the loan on 1 January 20X8.

Required -

1a. Calculate the effective interest rate associated with the loan.

1b. What net amount is received on 1 January 20X8?

2. Calculate the interest expense reported by the borrower for each year.

Reference no: EM132930487

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