Utah Inc. would need cash of P5,000,000 for a period of 3 months fromits bank. The latter offered 12% interest but it would be charged direct originationcosts to be deducted in advanced in the amount of P200,000. What would thesimple annual effective cost of this bank loan?

Simple effective cost is overall cost of loan including the origination cost and interest.

Utah Inc. would need cash of P5,000,000 for a period of 3 months f nk. The latter offered 12% interest but it would be charged direct originat to be deducted in advanced in the amount of P200,000. What would e annual effective cost of this bank loan?

Utah Inc. would need cash of P5,000,000 for a period of 3 months f nk. The latter offered 12% interest but it would be charged direct originat to be deducted in advanced in the amount of P200,000. What would e annual effective cost of this bank loan?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 15P

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Utah Inc. would need cash of P5,000,000 for a period of 3 months from
its bank. The latter offered 12% interest but it would be charged direct origination
costs to be deducted in advanced in the amount of P200,000. What would the
simple annual effective cost of this bank loan?

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