Ray Company is negotiating a loan with Excel Bank. Ray needs P900,000. As part of...
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Ray Company is negotiating a loan with Excel Bank. Ray needs P900,000. As part of the loan agreement, Excel Bank will require Ray to maintain a compensating balance of 15% of the loan amount on deposit in a checking account at the bank. Ray currently maintains a balance of P50,000 in the checking account. The interest rate Ray is required to pay on the loan is 12%. Excel Bank pays 4% interest on checking accounts. Determine the effective interest rate on the loan. (Hint: Compute the net interest paid on the loan per year and the take home amount of the loan.) a. 12.8% c. 13.0% b. 12.9% d. 13.4%
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