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A house is for sale for $200,000. You have a choiceof two 20-year mortgage loans with monthly payments: (1) if youmake a down payment of $50,000, you can obtain a loan with a 7%rate of interest or (2) if you make a down payment of $100,000, youcan obtain a loan with a 5% rate of interest. What isthe effective annual rate of interest (in percent) on theadditional $50,000borrowed on the first loan (i.e. what is theincremental borrowing cost)?
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