Assume that you can borrow $175000 for one year from a local commercial bank.
a. The bank loan officer offers you the loan if you agree to pay $16000 in interest plus repay the $175000 at the end of one year. What is the percent
interest rate or effective cost?
b. As an alternative you could get a one-year $175000 discount loan at 9 percent interest. What is the percent interest rate or effective cost?
c. Which one of the two loans would you prefer?
d. At what discount loan interest rate would you be indifferent between the two loans?
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