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XYZ company needs external financing. As VP for Finance, you approach three banks for a three-year...

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.

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jeff jeffy answered 2 years ago
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