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Your friend wants to borrow $2,500 and pay you back the $2,500in a year from now. You agree to the loanbut tell your friend he must pay you $500 up-front.a) What is the annual effffective rate of interest you havecharged your friend?b) Before your friend agrees to the deal, he gets a letter inthe mail saying he qualifified for a a credit cardfrom McMaster Bank with a $2,500 limit which charges an annualinterest rate of 25%, per month.Assuming your friend plans to make no monthly payments, butrather only one payment after 1 yearis up, should your friend take your deal, or use the McMastercredit card instead?c) Explain, using only words and formulas (no numbers orexamples), why simple interest outperforms compounding interest when the investment time is less than 1 year.Your answer should only be a few sentences long.