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Answer: calculate weighted average effective interest rate
Calculating the weighted average effective interest rate for small businesses with multiple overdrafts, loans, and other liabilities can be a bit tricky, but it's definitely doable. Here's how you can calculate it:
For example, let's say a small business has three loans: - Loan 1: $10,000 at 5% interest - Loan 2: $5,000 at 7% interest - Loan 3: $15,000 at 4% interest To calculate the weighted average effective interest rate, you would do the following: 1. List all of the loans and their interest rates: - Loan 1: $10,000 at 5% - Loan 2: $5,000 at 7% - Loan 3: $15,000 at 4% 2. Multiply the amount of each loan by its corresponding interest rate: - Loan 1: $10,000 x 0.05 = $500 - Loan 2: $5,000 x 0.07 = $350 - Loan 3: $15,000 x 0.04 = $600 3. Add up all of the interest expenses: - $500 + $350 + $600 = $1,450 4. Add up all of the loan amounts: - $10,000 + $5,000 + $15,000 = $30,000 5. Divide the total interest expense by the total amount of all of the loans: - $1,450 / $30,000 = 0.0483, or 4.83% So the weighted average effective interest rate for this small business is 4.83%.
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