The Asogli Company Ltd has been offered the following alternative terms for a one year loan to be repayable plus the interest in full at the end of the year:
i) 2.5% per month compounded monthly
ii) 10% per six months compounded six-monthly.
Required:
Calculate, for each alternative the annual percentage rate of interest. Recommend one of the alternatives and explain why. (10 marks)
View Solution
Because the company is borrowing money, it would prefer a lower interest rate, which is option (ii).