Question

06-14 Calculating EAR [LO4] First National Bank charges 13.1 percent compounded monthly on its business loans. First United Bank charges 13.4 percent compounded semiannually. Calculate the EAR for First National Bank and First United Bank. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) As a potential borrower, which bank would you go to for a new loan

Answer 1

13.92%

13.85%

Step-by-step explanation:

Effective annual interest = (1 + periodic interest)^m - 1

m = number of compounding

Periodic interest = annual interest rate / number of compounding

(1 + 0.131/12)^12 - 1 = 13.92%

(1 + 0.134/2)^2 - 1 = 13.85%