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Find the annual effective interest rate

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Reference no: EM132700887

Consider a group of 500 people interested in borrowing a loan of $6000 for 2 years. The lender requires an annual effective interest rate of 4% assuming there would be no default.

Find the annual effective interest rate the lender should offer if it is expected that 13 borrowers from this group will default but with 20% recovery.

Reference no: EM132700887

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