Question

Peterkin Inc needs to arrange financing for its expansion program. Sandy Bank offers to lend Peterkin the required funds on a loan in which interest must be paid monthly, and the quoted rate is 6 percent. Money Plus Bank will charge 6.8 percent, with interest due at the end of the year. Which bank should Peterkin take the loan from

Answer 1

Sandy Bank

Step-by-step explanation:

to determine which bank Peterkin would prefer a loan from, calculate the effective annual interest rate

the bank with the lower effective annual interest rate would be preferred

Effective annual rate = (1 + APR / m ) ^m - 1

M = number of compounding

Sandy Bank : (1 + 0.06/12)^12 - 1 = 0.062 = 6.2%

Money Plus Bank = 6.8

Sandy bank has a lower effective annual interest rate and would be preferred for the loan