(Compound interest with nonannual periods) After examining the various personal
ID: 2618153 • Letter: #
Question
(Compound interest with nonannual periods) After examining the various personal loan rates available to you, you find that you can borrow funds from a finance company at an APR of 6 percent compounded daily or from a bank at an APR of 7 percent compounded quarterly. Which alternative is more attractive? a. If you borrow $100 from a finance company at an APR of 6 percent compounded daily for 1 year, how much do you need to payoff the loan? $(Round to the nearest cent.) b. If you borrow $100 from a bank at an APR of 7 percent compounded quarterly for 1 year, how much do you need to payoff the loan? $J (Round to the nearest cent.) c. Based on the findings in parts (a) and (b), which alternative is more attractive? (Select the best choice below.) 0 A. The loan from the bank at an APR of 7% compounded quarterly. B. The loan from the finance company at an APR of 6% compounded dailyExplanation / Answer
a.
PV = Present Value = Loan = $100
R = Interest Rate = 6%
n = Compounding frequency = 365
FV = Future Value = Total required payment for Loan = ?
.
FV = PV x (1+R/n)^n
FV = 100 x (1+6%/365)^365
FV = $106.18
b.
PV = Present Value = Loan = $100
R = Interest Rate = 7%
n = Compounding frequency = 4
FV = Future Value = Total payment of Loan = ?
.
FV = PV x (1+R/n)^n
FV = 100 x (1+7%/4)^4
FV = $107.19
c.
Correct option is B > The loan from finance company at an APR of 6% compounded daily.
Because we are going to pay less FV i.e. $106.18 Vs $107.19
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.