Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for one yea

Question

Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for one year and the money can either be borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 6 percent and LIBOR 1.5 percent less. Also assume there will be a $40 transaction fee with LIBOR (this amount must be added to the interest cost with LIBOR). Which loan has the lower effective interest cost? (Use 360 days in a year.) ___ Prime ___LIBOR

Explanation / Answer

Do your answer with the help of calculation of savings....... If after difference the savings is more after deducting $40 then.... Libor is cheaper option.......... 1)$5000*(1.5)/100= 75..... 2)deduct 40 from this.... 3)=35 ..................... percentage difference..... 5000*4.5%=225......=> 225+40=265 265/5000*100= 5.3%................ this is effective intrest.... now.. cheaper by 6%-5.3%= 0.7%...... PLEASE RATE if you satisfied.. RATE ONLY TO ONE PERSON.. THANKING YOU. LIFESAVER...:)

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