Question

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, which loan will have the lower effective interest rate, and how much lower will it be?

Answer 1

Loan u
R=(1+0.0997/360)^360)-1
R=0.105*100=10.5%
Loan v
R=(1+0.1016/4)^4)-1
R==0.106*100=10.6%
Loan u is the lower by 0.1%

Answer 2

It's - d. Loan U’s effective rate will be 0.0713 percentage points lower than Loan V’s.