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I. SSCR has been negotiating a line of credit with two local banks. Metrobank offered the school a line with an interest rate which would float exactly with the prime rate and requires a compensating balance of 20%. Bank of the Philippine Islands (BPI) offered SSC-R Manila a line with an interest rate which would float 1 % above the prime rate and requires a compensating balance of 10%. a. Calculate the effective interest rate of each of the offers, assuming the prime rate is 9 percent. b. With which bank do you recommend the school accept the line of credit?

I. SSCR has been negotiating a line of credit with two local banks. Metrobank offered the school a line with an interest rate which would float exactly with the prime rate and requires a compensating balance of 20%. Bank of the Philippine Islands (BPI) offered SSC-R Manila a line with an interest rate which would float 1 % above the prime rate and requires a compensating balance of 10%. a. Calculate the effective interest rate of each of the offers, assuming the prime rate is 9 percent. b. With which bank do you recommend the school accept the line of credit?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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COST OF BANK LOAN SSCR has been negotiating a line of credit with two local banks. Metrobank offered the school a line with an interest rate which would float exactly with the prime rate and requires a compensating balance of 20%. Bank of the,Philippine Islands (BPI) offered SSC-R Manila a line with an interest rate which would float 1 % above the prime rate and requires a compensating balance of 10%. I. a. Calculate the effective interest rate of each of the offers, assuming the prime rate is 9 percent. b. With which bank do you recommend the school accept the line of credit?
Transcribed Image Text:COST OF BANK LOAN SSCR has been negotiating a line of credit with two local banks. Metrobank offered the school a line with an interest rate which would float exactly with the prime rate and requires a compensating balance of 20%. Bank of the,Philippine Islands (BPI) offered SSC-R Manila a line with an interest rate which would float 1 % above the prime rate and requires a compensating balance of 10%. I. a. Calculate the effective interest rate of each of the offers, assuming the prime rate is 9 percent. b. With which bank do you recommend the school accept the line of credit?
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