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Loan U will have a lower effective interest rate, and 0.0713 lower percentage points lower than Loan V and it can be determined by using the rate of interest formula.
Given that,
Dave is considering two loans.
Loan U has a nominal interest rate of 9.97%, and Loan V has a nominal interest rate of 10.16%.
If Loan U is compounded daily and Loan V is compounded quarterly.
We have to determine,
Which loan will have the lower effective interest rate, and how much lower will it be?
According to the question,
<h2>Effective Interest Rate;</h2>The effective interest rate is determined by the formula;
Loan U has a nominal interest rate of 9.97%,
Loan U is compounded daily,
Then,
The effective annual multiplier for loan U is,
And Loan V has a nominal interest rate of 10.16%,
and Loan V is compounded quarterly.
Then,
Therefore,
Loan V has a higher effective rate by,
Hence, Loan U will have a lower effective interest rate, and 0.0713 lower percentage points lower than Loan V.
For more details about Interest rate refer to the link given below.