Question

Edmonton Bank offers to lend you $10,000 at a nominal rate of 6.4%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Calgary Bank also offers to lend you the $10,000, but it will charge an annual rate of 6.4%, with no interest due until the end of the year. What is the difference in the effective annual rates charged by the two banks? 0.00% 0.59% 0.40% 0.19%

Answer #1

The formula for effective interest rate is =(1+rate/n)^n-1. The effective interest rate for Calgary bank is not calculated as it will be the same as the nominal interest rate as the compounding frequency is annual or 1.

Calc:

Gomez Electronics needs to arrange financing for its
expansion program. bank a offers to lend Gomez the required fund on
a loan where interest must be paid monthly, and the quotes rate is
8 per cent. bank b will charge 9 percent, with interest due at the
end of the year, what is the difference in the effective annual
rates charged by the two banks?

Your favorite bank is offering to lend $10,000 to you with the
agreement to make monthly payment of $250 over 4 years.
What is the effective annual rate the bank is charging you?
If you agree to borrow $10,000 with the above payment schedule,
what would be the loan balance at the end of year 1.

Bank A offers a nominal annual interest rate of 4% compounded
daily, while Bank B offers continuous compounding at a 3.4% nominal
annual rate. If you deposit $5,000 with each bank, what will be the
difference in the two bank account balances after 3 years?

1. If a bank advertises a savings account that pays a 6% nominal
interest rate compounded continuously, what is the effective annual
percentage rate?
2. Bank A offers a nominal annual interest rate of 5% compounded
daily, while Bank B offers continuous compounding at a 4.6% nominal
annual rate. If you deposit $3,000 with each bank, what will be the
difference in the two bank account balances after two years?
(Show ALL work and formulas used!)

What is the effective monthly interest rate for a loan with a 8%
nominal annual interest rate if the loan is compounded
(a) monthly, (b) daily, or
(c) continuously?
A friend offers you a loan at an effective daily interest rate
of 0.2%. (a) What is the nominal (also known as
the APR or Annual Percentage Rate) rate for this loan?
(b) What is the effective annual interest rate for
his loan?
Show all work please

There are four banks: A, B, C and D:
• Bank A offers an effective annual rate of 4.02%.
• Bank B offers a nominal annual interest rate of 4 %
compounded semiannually.
• Bank Coffers a nominal annual discount rate of 3.96%
compounded monthly.
• Bank D offers a nominal annual interest rate of 3.98%
compounded continuously.
(a) According to this ir rmation, where would you prefer to
open a savings account? Justify your answer. [4 marks]
(b) If...

Which bank has the best effective annual yield?
A) Badger Bank with a nominal rate of 6.4% compounded
monthly.
B) Wolverine Bank with a nominal rate of 6.34% compounded
weekly.
C) Catamount Bank with a nominal rate of 6.55% compounded
yearly.

You want to buy a car, and a local bank will lend you $10,000.
The loan would be fully amortized over 3 years (36 months), and the
nominal interest rate would be 15%, with interest paid monthly.
What is the monthly loan payment? What is the loan's EFF%?

What is the nominal annual rate of interest compounded quarterly
if a loan of $ 25,000 is repaid in seven years by payments of
$2000 made at the end of every six months?

You wish to buy a car for $25,000. The dealer offers you a
4-year loan with 2% interest. About what are your monthly payments?
$539.27 $553.36 $542.38 $547.71 Bank A has a 1 year loan for 6%
compounded annually. Bank B has a loan for 5.9% compounded monthly.
Which loan would you select for your business? Bank A: 6% nominal
interest is a better rate than Bank B nominal interest. Bank B:
5.9% nominal interest is a better rate than...

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