Question

First National Bank charges 11.1 percent compounded monthly on its business loans. First United Bank charges 11.3 percent compounded semiannually. Calculate the EAR for each bank. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

First National Bank's EAR is 11.68%

First United Bank's EAR is 11.62%

Step-by-step explanation:

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

APR is the annual rates given in the question as 11.1% and 11.3%

m is the number of times in the year that compounding is done, for instance, it is 12 for monthly compounding and 2 for semiannual compounding

First National Bank's EAR=(1+11.1%/12)^12-1=11.68%

First United Bank's EAR=(1+11.3%/2)^2-1=11.62%

The EAR for First National Bank is higher