The Loan condition of Loan X and Loan Y will meet the effective rate of 8.00% criteria of Mike.
Computation:
Given,
Effective interest rate =8%
Nominal interest rates:
Loan X =7.815%, compounded semiannually
Loan Y: 7. 724% nominal rate, compounded monthly
Loan Z: 7. 698% nominal rate, compounded weekly
The formula of the effective interest rate will be used:
For Loan X:
As the effective interest rate of Loan X is lower than the actual effective interest rate. Therefore, loan X meets the criteria of Mike.
For Loan Y:
As the effective interest rate of Loan Y is greater than the actual effective interest rate. Therefore, loan Y will not meet the criteria of Mike.
For Loan Z:
As the effective interest rate of Loan Z is lower than the actual effective interest rate. Therefore, loan Z meets the criteria of Mike.
Therefore, in reference to the computation of the effective interest rate of individual loans. The correct option is b. X and Z.
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