In: Finance
XYZ company needs external financing. As VP for Finance, you approach three banks for a three-year $5,000,000 loan. All three banks quoted a rate of 12 % per annum, payable in equal monthly instalments. The interest calculations are as follows:
Bank A – flat basis
Bank B – annual rest basis
Bank Z – reducing balance basis
Requirements:
- Compute the Effective Annual Rate for the three banks. Show your computations.
- As a borrower, which bank would you choose? Explain.