You have a choice of borrowing money from a finance company at 19 percent compounded dailty or borrowing money from a bank at 21 percent compounded semiannually. Which alternative is the most attractive?

(A) If you can borrow funds from a finance company at 19 percent compounded daily, the EAR for the loan is?

(B) If you can borrow funds from a finance company at 21 percent compounded semiannually, the EAR for the loan is?

(C) Based on the findings above, which alternative is more attractive?

(A) If you can borrow funds from a finance company at 19 percent compounded daily, the EAR for the loan is?

20.92%

(B) If you can borrow funds from a finance company at 21 percent compounded semiannually, the EAR for the loan is?

22.10%

(C) Based on the findings above, which alternative is more attractive?

As a borrower the funds from a finance company at 19 percent compounded daily is the better option because it charges lower rate.

Explanation:

1.

APR = 19%

Weekly Payment

m = 365

EAR = (1 + (0.19 / 365) ^365) - 1

EAR = 0.2092

EAR = 20.92%

2.

APR = 21%

Weekly Payment

m = 2

EAR = (1 + (0.21 / 2) ^2) - 1

EAR = 0.2210

EAR = 22.10%