#### Problem Statement: Engineering Economics

**Effective Interest Rate Problem Solving**

It is the practice of almost all banks in the Philippines that when they grant a loan, the interest for one year is automatically deducted from the principal amount upon release of money to a borrower. Let us therefore assume that you applied for a loan with a bank and the P80,000 was approved at an interest rate of 14% of which P11,200 was deducted and you were given a check of P68,800. Since you have to pay the amount of P80,000 one year after, what then will be the effective interest rate?

A. 16.02%

B. 16.28%

C. 16.32%

D. 16.47%

#### Problem Answer:

The effective interest rate of the loan is equal to **16.28%**.

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More Questions in: Engineering Economics (Simple & Compound Interest)

Also Questions in: Engineering Economics (Annuity, Depreciation, Bonds, Breakeven, etc.)

#### Online Questions and Answers in Engineering Economics

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