H. CANSY Merchandising borrowed P800,000 from ABC Bank at 10% simple interest or one year and six months. Required: Compute the effective interest of the bank loan. J. SIENT Company borrowed P900,000 from ABC Bank at 12% discounted rate for 90 days. Required: Determine the EAR of the discount.

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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.