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GrogVix [38]
4 years ago
8

First Bank offers personal loans at 7.7 percent compounded monthly. Second Bank offers similar loans at 7.4percent compounded da

ily. Which one of the following statements is correct concerning these loans? Assume a 365-day year. Multiple Choice The Second Bank loan has an effective rate of 8.01 percent. The First Bank loan has an effective rate of 7.98 percent. The annual percentage rate for the Second Bank loans is 7.68 percent. Borrowers should prefer the loans offered by First Bank. Both banks offer the same effective rate.
Business
1 answer:
Korolek [52]4 years ago
7 0

Answer:

The First Bank loan has an effective rate of 7.98 percent.

Explanation:

we calcualte the effective rate for both loand and check which statement is correct.

<u>First bank:</u>

(1+\frac{0.077}{12} )^{12} = 1 + r_e

(1+\frac{0.077}{12} )^{12} - 1 = r_e

     1.07977643  - 1 = 0.07977 = 7.98%

<u>Second bank:</u>

(1+\frac{0.074}{365} )^{365} = 1 + r_e

(1+\frac{0.077}{365} )^{365} - 1 = r_e

     1.076798729   - 1 = 0.076798729  = 7.68%

Notice tthis isthe effective rate not the annual percentage rate.

So only the statement abour the first bank effectibe rate is true.

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