Dr. Ruth is going to borrow $5,000 to help write a book. The loan is for one year and the money can either be borrowed at the prime rate or the LIBOR rate. Assume the prime rate is 11 percent and LIBOR 1.5 percent less. Also assume there will be a $45 transaction fee with LIBOR (this amount must be added to the interest cost with LIBOR). a. What is the effective interest rate on the LIBOR loan? (Use a 360-day year. Do not round intermediate calculations. Input your answer asa percent rounded to 2 decimal places.) b. Which loan has the lower effective interest cost? Input variables: Amount of loan Loan term Prime rate LIBOR rate difference from prime rate LIBOR transaction fee Number of days in a year $5,000 360 days 11.00% input as.xx 1.50% input as-XXX $45 360 Solution and Explanation: Effective rate (Interest / Principal) x (Days per year Days loan is outstanding) LIBOR loan: LIBOR rate Total interest plus fee Effective rate on LIBOR loan b. Which loan is cheaper