Question

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

Answer 1

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

Step-by-step 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.