Question

First National Bank charges 13.1 percent compounded monthly on its business loans. First United Bank charges 13.4 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?

Answer 1

EAR=[(1+APR/m)^m]-1

m: compounding periods

EAR( Effective annual interest rate: lãi thực hướng) for

• First National Bank:      [1+13.1%/12)^12]-1= 13.92%

• First United Bank:      (1+13.4%/2)^2-1= 2.25%

=> As a potential borrower, First United Bank is place I would go to for a new loan because of have lower EAR