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3 September, 08:13

First National Bank charges 12.4 percent compounded monthly on its business loans. First United Bank charges 12.7 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan

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  1. 3 September, 10:57
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    First Unit Bank is charging Lower So it is a better option for a borrower.

    Explanation:

    Suppose Borrowing amount = $100,000

    First National Bank

    Interest Charges = 12.4%

    Compounded Monthly = m = 12

    A = P x (1 + (r / m)) ^m

    A = 100,000 (1 + (0.124 / 12)) ^12

    A = 100,000 x 1.1312958

    A = $113,129.58

    First United Bank

    Interest Charges = 12.7%

    Compounded Semiannually = m = 2

    A = P x (1 + (r / m)) ^m

    A = 100,000 (1 + (0.127 / 2)) ^2

    A = 100,000 x 1.1310323

    A = $113,103.23

    So, First Unit Bank is charging Lower So it is a better option for a borrower.
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