[Anonymous]

Hello,

In the becker text, it mentions effective interest rate = interest paid/net proceeds.

In the example they gave in the textbook, fees and taxes and compensating balances are deducted from net proceeds (denominator).

But in one of the questions in the MCQ software, “transaction costs” was added to the numerator instead.

I am confused on this, why isn’t the transaction costs considered a deduction to the net proceeds?

Thanks for the help!

[barelystayingsane]

I also had trouble with this. The way someone explained it to me is that the reason the transaction costs are included in the interest paid part is because it's a cost of financing. When you're computing an “effective” interest rate you're trying to compute the true cost of the loan. I know you could still argue the other way based on that explanation (I know I did), but it's probably good just to memorize that if the phrase “transaction costs” arises in a question like this, you should add them to the numerator, not subtract them from the denominator.

[barelystayingsane]

I also had trouble with this. The way someone explained it to me is that the reason the transaction costs are included in the interest paid part is because it's a cost of financing. When you're computing an “effective” interest rate you're trying to compute the true cost of the loan. I know you could still argue the other way based on that explanation (I know I did), but it's probably good just to memorize that if the phrase “transaction costs” arises in a question like this, you should add them to the numerator, not subtract them from the denominator.

[Study Monk]

Barelystayinginsane did you get the EWS award? I like how your being all modest clearing your signature 😉

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Study Monk]

Barelystayinginsane did you get the EWS award? I like how your being all modest clearing your signature 😉

I spoke to an ancient wise man who sent me on a mushroom induced journey through an ancient forest to find the key to passing the CPA exam. A talking spider monkey told me to throw the last of my drinking water in the dirt to find what I was looking for. So I followed his instructions and the following message appeared in the soil:

"Do 5000 multiple choice questions for each section"

[Anonymous]

Hmm, I see.

Thanks for your help! I'll keep that term in mind in case if I ever run into a similar question.

[Anonymous]

Hmm, I see.

Thanks for your help! I'll keep that term in mind in case if I ever run into a similar question.

[Author]

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