Share
Explore BrainMass

Calculate the lowest effective interest rate

Please help with the following problem.

Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly. Credit Union is offering you a loan where payments are to be made semi-annually; the rate on the loan is also 10%. Local Bank down the street is also offering a loan at 10% where the payments are made quarterly. Which loan has the lowest effective annual rate?

Answer:
Last National Bank's loan
Local Bank's loan
Credit Union's loan
All of the loans will have the same effective annual rate.

Solution Preview

Problem: Last National Bank is offering you a loan at 10%; payments on the loan are to be made monthly. Credit Union is offering you a loan where payments are to be made semi-annually; the rate on the loan is also 10%. Local Bank down the street is also offering a ...

Solution Summary

This posting helps calculate the loan with the lowest effective annual rate. Present value and future value formulas are used. Step by step calculations are given, along with explanations for each step.

$2.19