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Find the Roma effective interest costs of the loan

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Reference no: EM132777264

Problem - Roma Company obtained a short-term bank loan for P1,000,000 at an annual interest rate 12%. As a condition of the loan Roma required to maintain a compensating balance of P200,000 in its checking account. The checking account earns interest at an annual rate of 6%. Roman would otherwise maintain only P100,000 in its checking account for transactional purposes. Find the Roma's effective interest costs of the loan?

a. 12%

b. 14.00%

c. 13.50%

d. 12.67%

Reference no: EM132777264

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