Question

Saint Joseph Travel and Tours Inc. borrows ₱ 45,000 from the bank for one year at an annual rate of 8% compounded quarterly. 1. How much interest will the company pay on this loan? 2. What is the effective rate of the loan?

Answer 1

1.

$FV=PV(1+r)^n=45000(1+0.08/4)^{4}=48709.45$

company will pay interest:

$48709.45-45000=3709.45$

2.

the effective rate of the loan:

$(1+0.08/4)^4-1=0.0824=8.24\%$