Question: 4.49 (b) Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two

4.49 (b) Beda borrows a $10,000 loan from Wendy for 5

4.49 (b) Beda borrows a $10,000 loan from Wendy for 5 years at an effective rate of interest of 8% per year. Wendy offers two options for Beda to repay the loan. 1: Interest payments due at year end are paid at year end, and the principal is repaid after 5 years. 2: The loan is repaid by five level payments over the 5 years. Wendy can only reinvest the repayments of Beda at 7% per annum. (b) Calculate the yield rate of Wendy under Option 2. Explain why the answer obtained is smaller than that in (a)

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