A company can borrow a discounted $12,500 loan for 6 months at 1.76%
a): What is the effective rate of interest (ERI) on the loan? Use a 360-day year calendar
ERI = Interest x Days in the year (360)
Principal Days loan is outstanding

b): If the company secures the loan at the rate calculated in A, the borrowed money would be further invested in an asset that yields an effective 8% return, covering the same period. Determine whether this proposition results in net gain (or loss) for the firm.

c): Alternatively, the firm can choose not to borrow and deposit its available funds in a savings account that pays an effective 2.50% rate with the same maturity as that of the loan compared to your assessment of the proposition outlined in B, which is the firm better off with the savings account.