Neco Model Questions Vol1 2023 Commerce Question 47

A Nigerian importer receives a sight Letter of Credit for \(\₦5{,}000{,}000\) payable to a foreign supplier. The bank discounts the LC at an annual rate of \(12\%\) for a \(30\)-day period and charges a flat handling fee of \(\₦25{,}000\). The supplier offers a \(2\%\) cash discount on the invoice if payment is made within \(10\) days of the invoice date. The importer discounts the LC on day \(20\) after the invoice date (i.e., \(10\) days remain before maturity) and then pays the supplier immediately, thereby forfeiting the cash discount. Determine (i) the total cost to the importer (including bank discount, handling fee and loss of cash discount) and (ii) the effective annual interest rate that this arrangement represents on the amount actually received from the bank.