A Bank Manager Lends a Corporate Client $1,000,000 for Six

Multiple Choice

A bank manager lends a corporate client $1,000,000 for six months. The bank charges a $1,000 fee to set up the loan. The corporate borrower repays $1,050,000 in six months. What is the effective annual rate on the loan?

A) 5%
B) 5.1%
C) 10.25%
D) 10.47%
E) none of the above {$1,050,000/($1,000,000 - $1,000) }² - 1 = 10.47%