periods) After examining the various personal loan rates available to you, you find that you can...
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 9 percent compounded quarterly or from a bank at an APR of 10 percent compounded monthly. Which alternative is more attractive?
Homework Answers
Ans We would prefer APR of 9 percent compounded quarterly since Effective Annual rate in this is less.
| EAR = | ( 1 + r )^n - 1 |
| Compounded Quarterly | |
| EAR= | ( 1 + 9%/4)^4 - 1 |
| EAR= | 9.31% |
| Compounded Monthly | |
| EAR= | ( 1 + 10%/12)^12 - 1 |
| EAR= | 10.47% |
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