Question

If you can borrow funds from a finance company at 12 percent compounded weekly​, the EAR for the loan is nothing​%. ​ (Round to two decimal​ places.) If you can borrow funds from a bank at 13 percent compounded semiannually​, the EAR for the loan is nothing​%. ​(Round to two decimal​ places.) Based on the findings​ above, which alternative is more​ attractive? ​ (Select the best choice​ below.) A. The loan from the bank at 13 % compounded semiannually B. The loan from the finance company at 12 % compounded weekly

Answer 1

Answer:

If compounded weekly =

No of weeks in a year=52

N= 52

EAR= (1+I/N)^N -1

=(1+0.12/52)^52 -1

=0.127=12.7% EAR

If compounded semiannually

N= 2

EAR= (1+0.13/2)^2 -1

=13.42%

It is better to borrow at 12% compounded weekly as the EAR is lower than 13% compounded semi annually.

Explanation: