Gemini Real Estate is offered a $2 million line of credit for four months at an APR of 9%. This loan has a loan origination fee of 1.5%. What is the actual four-month interest rate paid, expressed as an EAR?

Question

Quizplus · Accepted Answer

D) Origination fee = 0.015 × ($2,000,000) = $30,000
Actual amount borrowed = $2,000,000 - $30,000 = $1,970,000
Interest paid = $2,000,000 × (.03) = $2,060,000
four month interest rate = 2,060,000 / 1,970,000 = 1.045685
EAR = 14.34%

Gemini Real Estate Is Offered a $2 Million Line of Credit