What is the effective interest of the loan

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Q1. Isko bukol Company received a line of credit from its bank. The stated interest rate is 12%, deducted in advance. The line of credit agreement requires that an amount equal to 20% of the loan be deposited into a compensating balance account. On March 1, the company drew down the entire usable amount of the loan and received the proceeds of P340,000. How much is the principal amount of the loan?

Q2. Budol Company obtained a short-term loan of P500,000 at an annual interest rate of 10%. The bank requires that a compensating balance of 20% be maintained in the borrower's account. The compensating balance will earn interest of 2% per annum, payable on the maturity of the loan. Even before the approval of the loan, the company has been maintaining a balance of P50,000 in the account. Thus, in compliance with the bank's condition, the company will just deposit from the loan principal an amount of P50,000. What is the effective interest of the loan?

Reference no: EM133128164

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