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You approach 3 banks for a three-year $5,000,000 loan. All 3 banks quoted a rate of 12 % per annum, payable in equal monthly instalments.

You approach 3 banks for a three-year $5,000,000 loan. All 3 banks quoted a rate of 12 % per annum, payable in equal monthly instalments. The interest calculations are as follows:

Bank 1 flat basis

Bank 2 annual rest basis

Bank 3 reducing balance basis

Requirements:

- Compute the Effective Annual Rate for the three banks. Show your computations.

- Which bank will choose. Why?

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