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Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly. The...

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Finance

Riverside Bank offers to lend you $50,000 at a nominal rate of6.5%, compounded monthly. The loan (principal plus interest) mustbe repaid at the end of the year. Midwest Bank also offers to lendyou the $50,000, but it will charge an annual rate of 7.0%, with nointerest due until the end of the year. How much higher or lower isthe effective annual rate charged by Midwest versus the ratecharged by Riverside? A. 0.35% B. 0.50% C. 0.30% D. 0.45%

Answer & Explanation Solved by verified expert
4.2 Ratings (852 Votes)
Riverside Bank Effective annual rate is calculated using the below formula EAR 1rnn1 Where r is the interest rate and n    See Answer
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Transcribed Image Text

Riverside Bank offers to lend you $50,000 at a nominal rate of6.5%, compounded monthly. The loan (principal plus interest) mustbe repaid at the end of the year. Midwest Bank also offers to lendyou the $50,000, but it will charge an annual rate of 7.0%, with nointerest due until the end of the year. How much higher or lower isthe effective annual rate charged by Midwest versus the ratecharged by Riverside? A. 0.35% B. 0.50% C. 0.30% D. 0.45%

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