1. Nathalie Co. buys on terms of 2/10, net/30, but generally does not pay until 40 days after the invoice date. Its purchases total P 1,080,000 per year.

a. How much non-free trade credit does the firm use each year?

b. What is approximate cost of the "non-free" trade credit?

2. You plan to borrow P10,000 from your bank, which offers to lend you the money at a 10% nominal, or stated, rate on a 1-year loan.

a. What is the effective interest rate if the loan is a discount loan?

b. What is the approximate effective interest rate if the loan is an add-on interest loan with 12 monthly payments?

c. What is the effective interest rate if the loan is a discount loan with a 15% compensating balance?

d. Under the terms in (c), how much would you have to borrow to have the use of P10,000?