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Hatshy [7]
2 years ago
15

Bank A offers to lend you money at 10 percent compounded monthly, Bank B at 11 percent compounded quarterly, and Bank C at 12 pe

rcent compounded annually. Calculate the effective rates and state which bank offers the lowest cost of borrowed capital.
Business
1 answer:
ahrayia [7]2 years ago
8 0

Answer and Explanation:

The computation is given below:

For Bank A,

Effective annual rate is

= (1 + 0.10 ÷ 12)^12 - 1

= 10.47%

For Bank B,

Effective annual rate is

= (1 + 0.11 ÷ 4)^4 - 1

= 11.46%

And,

For Bank C,

Effective annual rate = 12%

Therefore, Bank A is best to borrow at lowest effective annual rate

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