Question

Callbl " E- Cells Editing Paste B I U- - A A DE - AAlignment Number Conditional Format as Cell Formatting Table Styles Styles Clipboard Font A1 F ДА В G H First National Bank charges 12.4 percent compounded monthly on its business loans. First United Bank charges 12.7 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan? Complete the following analysis. Do not hard code values in your calculations. Times compounded per year Effective rate (EAR) First National Bank First United Bank Stated rate (APR) 12.4% 12.7% Sheet1 READY Attempt(s) 0 - + 100%

entered as formula in spreadsheet

Answer 1

EAR for First national bank = 12.4%, as it's already compounded over a year.

EAR of First United Bank = (1+r)ⁿ-1

Here, r = 12.7/6 = 2.117% = 0.02117 per 2 month

n = 6( 6 periods of 2 months over an year)

So,

EAR of First United Bank = (1+0.02117)⁶-1

= 1.1339 - 1

= 13.39%

So, as a potential borrower its better to go with First National Bank as the EPR per year is less.

Please upvote if this helps.