The B Company obtained a short-term bank loan for P1,000,000 at an annual interest rate 9%. As a condition of the loan B is required to maintain a compensating balance of P150,000 in its checking account. The checking account earns interest at an annual rate of 2.5%. The company would otherwise maintain only P50,000 in its checking account for transactional purposes. The Bank allows the use of this as part of the compensating balance. The effective interest costs of the loan is nearest to answer: 9.72%

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