First Bank offers personal loans at 7.6 percent compounded monthly. Second Bank

Question

First Bank offers personal loans at 7.6 percent compounded monthly. Second Bank offers similar loans at 7.75 percent compounded semi-annually. Which one of the following statements is correct concerning these loans? Answer The First Bank loan has an effective rate of 7.67 percent. The Second Bank loan has an effective rate of 8.03 percent. The annual percentage rate for the Second Bank loans is 7.90 percent. Borrowers should prefer the loans offered by Second Bank. The First Bank offers the best deal on loans.

Explanation / Answer

Answer: The First Bank offers the best deal on loans

Reason: First Bank effective rate is 7.8% compared to Second Bank effective rate 7.9%

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