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Determine the sarah effective interest costs of the loan

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Question - Sarah Company obtained a short-term bank loan for P1,000,000 at an annual interest rate of 12%. As a condition of the loan, Sarah is required to maintain a compensating balance of P200,000 in its checking account. The checking account earns interest at an annual rate of 6%. Sarah would otherwise maintain only P100,000 in its checking account for transactional purposes. Determine the Sarah's effective interest costs of the loan?

Reference no: EM133156739

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