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Effective Annual Rates

A company needs to arrange financing for its expansion program. Bank "1" offers to lend the company the rquired funds on a loan where the interest must be paid monthly and the quoted rate is 8%. Bank "2" will charge 9% with interest due at the end of the year. What is the difference in the effective annual rates charged by the two banks?

Part B

If you invest to earn a stated annual rate of return of 12% where the interest is compounded semiannually. If you make 20 consecutive semiannual deposits of $500 each with the first deposit being made today, what will the balance be at the end of the year?

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Effective Annual Rates
A company needs to arrange financing for its expansion program. Bank "1" offers to lend the company the required funds on a loan where the interest must be paid monthly and the quoted rate is 8%. Bank "2" will charge 9% with interest due at the end of the year. What is the difference in the effective annual rates charged by the ...

Solution Summary

This solution is comprised of a detailed explanation to answer what is the difference in the effective annual rates charged by the two banks and what will the balance be at the end of the year.

$2.19