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What is the effective annual rate?

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The Baxter, Inc. borrowed $100,000 for six months from the bank. The rate is prime plus 2 percent. The prime rate was 8.5 percent at the beginning of the loan and changed to 9 percent after two months. This was the only change. How much interest must The Jackson Corporation pay? What is the effective annual rate?

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Solution Summary

This tutorial determines how much interest must the Jackson Corporation pay.

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Interest rate for 1st two months = 2%+8.5% = 10.50%

Interest for 2 months = ...

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