The effective rate of interest is the real return on a savings account when the effects of an increase over time are taken. Loan U having a lower by 0.000713 points lower than Loan V.
<h3>What is the effective rate of interest?</h3>
The effective interest rate is also known as the effective annual interest rate, It is the interest rate on a loan and is shown as the equivalent interest rate if compound interest was payable annually in liabilities.
Computation of the effective rate of interest:
The formula of effective rate of interest is:
![(1+\frac{r}{t} )t](https://tex.z-dn.net/?f=%281%2B%5Cfrac%7Br%7D%7Bt%7D%20%29t)
<u>For Loan </u><u>U</u><u>:</u>
Nominal rate = 10.16% and compounded daily.
Now by putting the values in the above formula, we get,
![=(1+\frac{r}{t} )^t\\\\=(1+\frac{0.997}{365} )^3^6^5\\\\=(1+0.0027)^3^6^5\\\\=1.104824](https://tex.z-dn.net/?f=%3D%281%2B%5Cfrac%7Br%7D%7Bt%7D%20%29%5Et%5C%5C%5C%5C%3D%281%2B%5Cfrac%7B0.997%7D%7B365%7D%20%29%5E3%5E6%5E5%5C%5C%5C%5C%3D%281%2B0.0027%29%5E3%5E6%5E5%5C%5C%5C%5C%3D1.104824)
<u>For loan </u><u>V</u><u>:</u>
Nominal rate = 10.16% and compounded quarterly.
Now by putting the values in the above formula, we get,
![=(1+\frac{r}{t} )^t\\\\=(1+\frac{0.1016}{4} )^4\\\\=(1+0.0254)^4\\\\=1.105537](https://tex.z-dn.net/?f=%3D%281%2B%5Cfrac%7Br%7D%7Bt%7D%20%29%5Et%5C%5C%5C%5C%3D%281%2B%5Cfrac%7B0.1016%7D%7B4%7D%20%29%5E4%5C%5C%5C%5C%3D%281%2B0.0254%29%5E4%5C%5C%5C%5C%3D1.105537)
Therefore, Loan V has a greater effective interest rate to be 0.000713 (1.105537-1.104824).
To learn more about the effective rate of interest, refer to:
brainly.com/question/14270693