Problem
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 2.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%.
What is the all-in-cost (AIC, i.e., the internal rate of return) of the Polaris loan including the LIBOR rate, fixed spread and upfront fee?