Ask Question
15 November, 10:48

Bank A offers to lend you $1,000,000 at a nominal rate of 6%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Bank B also offers to lend you the $1,000,000, but it will charge 6.40%, with interest due at the end of the year. What is the difference in the effective annual rates charged by the two banks

+2
Answers (1)
  1. 15 November, 11:06
    0
    Bank A:

    Real rate = 6.168%

    Bank B:

    Real rate = 6.4%

    Explanation:

    Giving the following information:

    Bank A:

    Annual nominal rate = 6% compounded monthly

    Bank B:

    Annual rate = 6.4%

    The period that we will use to compare is one year.

    Bank A:

    Nominal rate = 0.06/12 = 0.005

    Real rate = [ (1.005^12) - 1] = 0.06168 = 6.168%

    Bank B:

    Real rate = 6.4%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Bank A offers to lend you $1,000,000 at a nominal rate of 6%, compounded monthly. The loan (principal plus interest) must be repaid at the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers