1) Masipag Corporation has a line of credit with Bank X for P 10,000,000 for the year 2016. For any amount borrowed, the bank requires the borrower a compensating balance of 5%. Assuming the company needed P 5,000,000 cash on June 30, 2016 and availed of the credit line for 12% interest payable on December 31, 2016; and assuming further that the company has no existing deposit with the bank:

a) How much should the company borrow to have a net cash proceeds of P 5,000,000?

b) How much is the compensating balance?

c) What is the effective interest rate from this transaction?