The effective annual rate of Midwest is 0.2% lower than the rate charged by Riverside.
Further Explanation:
Riverside Bank:
Principal = $50,000
Duration = 1 year
APR = 6.5%
The amount paid after 1 year is
A = 50000(1 + 0.065/12)¹² = $53,348.59
Midwest Bank:
Principal = $50,000
APR = 6.2%
Duration = 1 year
The amount paid after 1 year is
A = 50000*(1 + 0.062) = $53,100.00
The amount charged by Midwest is lower:
Let r = the effective annual rate of Riverside Bank.
Then
50000*(1 + r) = 53348.59
1 + r = 53348.59/50000 = 1.067
r = 0.067 = 6.7%
Effective annual rate:
The viable yearly financing cost is the loan fee that is really earned or paid on a venture, advance or other money related item because of the aftereffect of intensifying over a given timeframe. It is additionally called the powerful loan cost, the viable rate or the yearly comparable rate.
Instructions to Calculate the Effective annual Rate:
1. Determine the expressed loan fee. The expressed financing cost (additionally called yearly rate or ostensible rate) is generally found in the features of the credit or store understanding.
2. Determine the quantity of aggravating periods.
3. Apply the EAR Formula: EAR = (1+ I/n)n – 1.
Subject: mathematics
Level: college
Keywords: Riverside Bank, Midwest Bank, The amount charged by Midwest is lower, Effective annual rate, Instructions to Calculate the Effective annual Rate.
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