Calculate the effective annual interest rate

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Question 1: Del Hawley is negotiating with City Bank for a P50,000, 1-year loan. City Bank has offered Hawley the following alternatives. For each independent alternative, calculate the effective annual interest rate and choose which alternative Hawley will avail based on your answers:

a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year.

b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest again due at the end of the year.

c. An 8.75% annual rate on a discounted loan with a 15% compensating balance.

d. Interest is figured as 8% of the P50,000 amount, payable at the end of the year, but the P50,000 is repayable in monthly installments during the year (hint: periodic rate is between 1% to 1.5% per month).

Reference no: EM132678720

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