After reviewing the various personal loan rates available to you, you find you can borrow from a...
Question:
After reviewing the various personal loan rates available to you, you find you can borrow from a finance company at 11.5%, compounded weekly, or from a bank at 12.5%, compounded monthly. Which option is most attractive?
Compound Interest:
Compound interest has many benefits for investors and lenders. This is the most attractive type of interest because it earns money on previous earnings. As a consequence, it accumulates higher returns because it makes investments grow quicker than simple interest.
Answer and Explanation: 1
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View this answerWe can use the effective annual interest calculation to compare different investment alternatives that have different compounding frequencies.
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Effective Annual Rate | Formula, Calculations & Examples
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Chapter 5 / Lesson 8
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Know the definition of the effective annual rate (EAR), see the formula for calculating the effective annual rate, and explore some examples on how to calculate the effective annual rate.
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