Answer Happy

BRAND COMPANY is negotiating with BRAUM CITY BANK for a PiM, 1-year loan. BRAUM CITY BANK has offered BRAND COMPANY the following alternatives. Calculate the effective annual interest rate for each alternative. a. A 12.5 percent annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year. b. A 9.25 percent annual rate on a simple interest loan, with a 20 percent compensating balance required and interest again due at the end of the year. c. A 8.75 percent annual rate on a discount loan, with a 20 percent compensating balance. d. A 8.75 percent annual rate on a discount loan, with a 20 percent compensating balance and an existing cash balance of P150,000 e. A 8.75 percent annual rate on a discount loan, with a 20 percent compensating balance which earns 5% interest income. f. A 8.75 percent annual ratepon a discount loan, with a 20 percent compensating balance and an existing cash balance of P150,000. The bank balance earns 5% interest income.