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What is true effective annual interest rate being charged

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Question - A small company needs to borrow Php 160,000. The local (and only) banker makes this statement: "We can loan you Php 160,000 at a very favorable rate of 12% per year for a five-year loan. However, to secure this loan you must agree to establish a checking account (with no interest) in which the minimum average balance is Php 32,000. In addition, your interest payments are due at the end of each year and the principal will be repaid in a lump-sum amount at the end of year five". What is the true effective annual interest rate being charged?

Reference no: EM132575850

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