Total annual effective interest rate of the person JS and to find the loan which offers better terms Introduction: The effective annual rate (EAR) is the actual rate that is earned by an individual. This interest rates are generally shown as it were compounded once in a year. Solution: The person JS has two option for borrowing, they are discount loan with 8.70% annual effective interest rate and 9% for the loan that pays interest at the maturity. As considering the effective interest rate, the discount loan eases the total interest to be paid by the person JS and thereby, the discount loan is better to prefer.

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Chapter 16, Problem 16.3WUE

Summary Introduction

To discuss: Total annual effective interest rate of the person JS and to find the loan which offers better terms

Introduction:

The effective annual rate (EAR) is the actual rate that is earned by an individual. This interest rates are generally shown as it were compounded once in a year.

Solution:

The person JS has two option for borrowing, they are discount loan with 8.70% annual effective interest rate and 9% for the loan that pays interest at the maturity. As considering the effective interest rate, the discount loan eases the total interest to be paid by the person JS and thereby, the discount loan is better to prefer.

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