YOUR company needs external financing. As VP for Finance, you approach three banks for a three-year P5,000,000 loan. All three banks quoted a rate of 12 percent per annum, payable in equal monthly installments. The interest calculations are as follows:

Bank X flat basis

Bank Y annual rest basis

Bank Z reducing balance basis

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

As borrower, which bank would you choose? Explain.