Problem 6.14 – EAR for First National Bank and First United Bank
Fundamentals of Corporate Finance
Ross, Westerfield, and Jordan
13th Edition
How can you compare loans with different compounding periods, given their annual interest rates? Suppose there are two banks offering loans with different compounding periods and annual interest rates: Bank A charges X% compounded monthly, while Bank B charges Y% compounded semiannually. Which bank should you choose if you are a potential borrower? Calculate the EAR for the different banks.
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Your numbers will vary.