Larry is considering two bank loans. Bank A is offering a loan at 5.21% interest
ID: 2797343 • Letter: L
Question
Larry is considering two bank loans. Bank A is offering a loan at 5.21% interest paid at the end of one year, annual compounding. Bank B is offering a 5.15% interest loan, compounded quarterly, paid at the end of one year. Which bank loan should Larry select?
Bank A as the nominal rate of 5.21%is better than the nominal rate 0f 5.15 %for Bank B.
Bank B as the effective rate of 5.15% is better than the effective rate of 5.21% for Bank A
Bank B as the effective rate of 5.25% is better than the effective rate of 5.21% for Bank A
Bank A as the effective rate of 5.21% is better than the effective rate of 5.25% for Bank B
A:Bank A as the nominal rate of 5.21%is better than the nominal rate 0f 5.15 %for Bank B.
B:Bank B as the effective rate of 5.15% is better than the effective rate of 5.21% for Bank A
C:Bank B as the effective rate of 5.25% is better than the effective rate of 5.21% for Bank A
D:Bank A as the effective rate of 5.21% is better than the effective rate of 5.25% for Bank B
Explanation / Answer
Effective annual rate of Bank - B = (1.012875)4 - 1 = 5.25%...........final answer
So select the correct answer ...... as Option - C
Bank B as the effective rate of 5.25% is better than the effective rate of 5.21% for Bank A
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