If you can borrow funds from a finance company at 12 percent compounded weekly , the EAR for the loan is nothing %. (Round to two decimal places.) If you can borrow funds from a bank at 13 percent compounded semiannually , the EAR for the loan is nothing %. (Round to two decimal places.) Based on the findings above, which alternative is more attractive? (Select the best choice below.) A. The loan from the bank at 13 % compounded semiannually B. The loan from the finance company at 12 % compounded weekly

Question

Business

Dania

10 May, 19:04

If you can borrow funds from a finance company at 12 percent compounded weekly , the EAR for the loan is nothing %. (Round to two decimal places.) If you can borrow funds from a bank at 13 percent compounded semiannually , the EAR for the loan is nothing %. (Round to two decimal places.) Based on the findings above, which alternative is more attractive? (Select the best choice below.) A. The loan from the bank at 13 % compounded semiannually B. The loan from the finance company at 12 % compounded weekly

+5

Answers (1)

Know the Answer?

Elaina · Answer 1

If compounded weekly =

No of weeks in a year=52

N = 52

EAR = (1+I/N) ^N - 1

= (1+0.12/52) ^52 - 1

=0.127=12.7% EAR

If compounded semiannually

N = 2

EAR = (1+0.13/2) ^2 - 1

=13.42%

It is better to borrow at 12% compounded weekly as the EAR is lower than 13% compounded semi annually.