Question

You own Howl Coffee Inc., and just decided to open up a new store in Riverside, CA. This will cost around $200,000 and you have $0 in your business account!

However, three banks you have visited are willing to give you the $200,000 loan to fund the Riverside store. CSUSB Bank is offering you a $200,000 loan at 8.7% simple interest (no compounding). Bank of Riverside has offered you a $200,000 loan at 8.5% compounded daily (assume 365 days in a year). Finally, Bank of Redlands has offered you an 8.4% loan compounded continuously. What is the EAR of the least expensive (lowest effective interest)loan?

Answer 1

Solution:- Given in Question-

Howl Coffee Inc decide to open up a new store and its cost $2,00,000.

To Find- Which least EAR have to prefer to take loan-

Effective Annual Rate for CSUSB Bank-

EAR =

EAR =

EAR = 8.70%

Effective Annual Rate for Riverside Bank-

EAR =

EAR =

EAR = 8.87%

Effective Annual Rate for Redlands Bank-

EAR = eR  - 1

EAR = 2.718280.084 - 1

EAR = 8.76%

Howl Coffee Inc are advised to take loan from CSUSB Bank because this bank is least expensible from others.

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