Answer:
Effective yield = 7%
Explanation:
Determine the expected effective yield to the lender if Loan is repaid in 2 years
Effective annual yield = [tex]( 1 + IRR )^{n-1}[/tex]
n = 12 months
IRR = 0.57%
hence expected effective yield to Lender if Loan is repaid in 2 years
≈ 0.07 = 7%
Use Excel to determine the IRR Function
From the table below the IRR value = 0.57%
Below is a table showing the Year and CF values
Year CF
0 -200,000
1 $954.83
2 $954.83
3 $954.83
4 $954.83
5 $954.83
6 $954.83
7 $954.83
8 $954.83
9 $954.83
10 $954.83
11 $954.83
12 $954.83
13 $983.48
14 $983.48
15 $983.48
16 $983.48
17 $983.48
18 $983.48
19 $983.48
20 $983.48
21 $983.48
22 $983.48
23 $983.48
24 $205,538.11
