Ask Question
BusinessBusiness
13 January, 09:02

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 7.75 percent, compounded daily. Loan B offers a rate of 8 percent, compounded semi-annually. Which loan should you select and why? a. the annual percentage rate is 7.68 percent. b. the annual percentage rate is 7.15 percent. c the effective annual rate is 8.16 percent. d. the effective annual rate is 8.06 percent.

+4
Answers (1)
  1. 13 January, 12:16
    0
    You should go for Loan B because its Effective Interest Rate is better than that of Loan A.

    c. The effective annual rate is 8.16 percent.

    Explanation:

    We cannot make decisions based on the Nominal Interest Rates. So, we have to look at the Effective interest rates of each investment option because Effective Interest Rate takes the effect of compounding into account. The formula of Effective Interest Rate is:

    r = [ (1 + i / n) ^ n] - 1

    where

    r = Effective Interest Rate

    i = Nominal Interest Rate that is the interest rate states

    n = No. of compounding periods.

    Effective Interest Rate of Loan A = 8.057%.

    Effective Interest Rate of Loan B = 8.16%.

    So, it can seen that Loan B generates a better return.
Know the Answer?
Not Sure About the Answer?
Find an answer to your 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 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
The economy of Omega operates according to Okun's law. In Omega, potential GDP and real GDP both equal $7 trillion, and the natural rate of unemployment equals 6 percent. What is the actual rate of unemployment in Omega?
Answers (1)
Pigskin Co., a U. S. corporation, sold inventory on credit to a British company on April 8, 2018. Pigskin received payment of 35,000 British pounds on May 8, 2018. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8.
Answers (1)
If the manufacturer of Cool Whip were to introduce an orange-flavored Cool Whip and still continue to produce all of its other Cool Whip products, this would be an example of a) a brand extension. b) line extension. c) functional modification.
Answers (1)
Hosha exchanges all of her leaf stock for petal stock plus $5,000 cash. the exchange is pursuant to a tax-free reorganization. hosha paid $25,000 for the leaf stock five years ago. the petal stock received by hosha has an $18,000 fair market value.
Answers (1)
Suppose that a small business takes in monthly revenue of $100,000. Labor, rental, energy, and other purchased input costs are $70,000.
Answers (1)
New Questions in Business
After Sunshine Systems merged with RTD Enterprises, company executives noticed that due to increased employee collaboration between the two units, costs were down and revenues increased within both areas.
Answers (1)
When the consumer price index rises, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d.
Answers (1)
A magazine subscription costs $45 per year at the beginning of each year, or $115 now for a three-year subscription. If the subscriber elects to pay the $115 now, the rate of return on the investment will be nearest to:
Answers (2)
The second step in rational decision making is to: choose the solution that maximizes value. identify the criteria that are important in making the decision. evaluate the alternatives. implement the alternative.
Answers (1)
What impact will a spike in wages cause to the labor demand curve?
Answers (1)
Home » Business » 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 7.75 percent, compounded daily. Loan B offers a rate of 8 percent, compounded semi-annually.
Sign Up Forgot Password?