What would be the real cost of borrowing in the following case? A home equity loan is advertised at three percent compounded monthly,however,there is a legal fee of $400 and appraisal fee of $450 to set up the house as collateral.If Sarah needs to borrow $20 000 for one year,at which time will be able to repay the full amount,what is the effective rate of borrowing the $20 000 for the year?
A)3)04%
B)7)29%
C)7)25%
D)4)25%

Question

Quizplus · Accepted Answer

The real cost of borrowing includes both the interest and the fees. The nominal interest rate is 3% compounded monthly, but the additional $850 in fees increases the effective cost. Calculating the effective annual rate considering these fees results in approximately 7.29%.

What Would Be the Real Cost of Borrowing in the Following