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5 June, 09:19

If you can borrow funds from a finance company at 12 percent compounded weekly , the EAR for the loan is nothing %. (Round to two decimal places.) If you can borrow funds from a bank at 13 percent compounded semiannually , the EAR for the loan is nothing %. (Round to two decimal places.) Based on the findings above, which alternative is more attractive? (Select the best choice below.) A. The loan from the bank at 13 % compounded semiannually B. The loan from the finance company at 12 % compounded weekly

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  1. 5 June, 09:24
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    If compounded weekly =

    No of weeks in a year=52

    N = 52

    EAR = (1+I/N) ^N - 1

    = (1+0.12/52) ^52 - 1

    =0.127=12.7% EAR

    If compounded semiannually

    N = 2

    EAR = (1+0.13/2) ^2 - 1

    =13.42%

    It is better to borrow at 12% compounded weekly as the EAR is lower than 13% compounded semi annually.
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