NexMind Al Sdn Bhd is seeking a loan for a period of one year for its intended purchase of three new machines. The cost of one machine is RM70,000 and 70 percent of financing is required. NexMind Al Sdn Bhd is considering two alternatives of loan as follows:

A loan from CIMB Islamic Bank where the bank offers 9 percent simple interest and 14 percent compensating balance.

A loan from Maybank Islamic Berhad where the bank offers

10 percent discount interest and 10 percent compensating balance

You are required to:

i. Calculate the Effective Annual Rate (EAR) for both loans.

ii. Determine the best islamic bank that NexMind Al Sdn Bhd should consider. State your reason.