Original interest rate on the loan

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Reference no: EM131528586

A bank makes a loan of 20,000 at an interest rate of i. The loan will be repaid with level payments at the end of each year for 20 years. When the bank receives each payment, it reinvests at a rate of 5%. At the end of the 20 year period, the bank calculates the annual effective return over the loan period to be 6.5%. What is i, the original interest rate on the loan?

Reference no: EM131528586

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