You have a choice of borrowing money from a finance company at 19 percent compounded dailty or borrowing money from a bank at 21 percent compounded semiannually. Which alternative is the most attractive?

(A) If you can borrow funds from a finance company at 19 percent compounded daily, the EAR for the loan is?
(B) If you can borrow funds from a finance company at 21 percent compounded semiannually, the EAR for the loan is?
(C) Based on the findings above, which alternative is more attractive?

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hyderali230 hyderali230 · Answer 1 · 2020-02-17T15:21:07+01:00

Answer:

(A) If you can borrow funds from a finance company at 19 percent compounded daily, the EAR for the loan is?

20.92%

(B) If you can borrow funds from a finance company at 21 percent compounded semiannually, the EAR for the loan is?

22.10%

(C) Based on the findings above, which alternative is more attractive?

As a borrower the funds from a finance company at 19 percent compounded daily is the better option because it charges lower rate.

Explanation:

1.

APR = 19%

Weekly Payment

m = 365

EAR = ( 1 + ( 0.19 / 365 )^365)-1

EAR = 0.2092

EAR = 20.92%

2.

APR = 21%

Weekly Payment

m = 2

EAR = ( 1 + ( 0.21 / 2 )^2 ) - 1

EAR = 0.2210

EAR = 22.10%