Answer:
8.4%
Explanation:
To find the effective annual interest rate, we must first find the total amount of interest paid, and this amount is equal to the repaid amount minus the borrowed amount:
Interest paid = $1,250,000 - $1,200,000
           = $50,000
To find the interest rate, we divided the interest paid by the borrowed amount:
Interest rate = $50,000 / $1,200,000
          = 0.042
          = 4.2%
Finally, we multiply this number by 2 to obtain the effective annual interest rate:
Effective Annual Interest Rate = 4.2% x 2
                         = 8.4%
