You are considering two loans. The terms of the two loans are equivalent with th

Question

You are considering two loans. The terms of the two loans are equivalent with the exception of the interest rates. Loan A offers a rate of 9.25 percent, compounded semiannually. Loan B offers a rate of 9.1 percent, compounded daily. Which loan should you select and why?

B; the annual percentage rate is 9.10 percent

A; the annual percentage rate is 9.25 percent

B; the effective annual rate is 9.53 percent

A; the effective annual rate is 9.46 percent.

The loans are equivalent offers so you can select either one.

B; the annual percentage rate is 9.10 percent

A; the annual percentage rate is 9.25 percent

B; the effective annual rate is 9.53 percent

A; the effective annual rate is 9.46 percent.

The loans are equivalent offers so you can select either one.

Explanation / Answer

You should select the loan which has a lowe effective interest rate

The effective interest rate of loan A = (1+0.0925/2)^2 -1 = 9.46%

The effective interest rate of loan B = (1+0.091/4)^4 -1 = 9.42%

So we select Loan we select Loan B since it has a lower effetive rate.

Som answer is B; the annual percentage rate is 9.10 percent

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.