Clyde Cook wants to start his own business. He has asked his bank for a $50,000 new-venture loan. The bank has a policy of making discount-rate loans in these cases if the venture looks good, but at an interest rate of prime plus 2. (The prime rate is currently posted at 4.25 percent.) If Mr. Cook’s loan is approved for the full amount requested, what net proceeds will he have to work with from this loan? What is the effective interest rate on this loan for one year?
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