The effective cost of the loan if the note required discount

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Reference no: EM13939368

4Gifts Galore Inc. borrowed $1.5 million from National City Bank. The loan was made at a simple annual interest rate of 9% a year for 3 months. A 20% compensating balance requirement raised the effective interest rate.

a. The nominal annual rate on the loan was 11.25%. What is the true effective rate?

b. What would be the effective cost of the loan if the note required discount?

Reference no: EM13939368

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