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ABC Bank offers to lend you $50,000 for one year at a quoted annual rate of 8.44% with each payment at the end of each month. DEF Bank also offers to lend you the same amount at a quoted annual rate of 8.64%, with each payment at the end of each quarter. What is the difference in the effective annual rates charged by the two banks

Respuesta :

The difference in the effective annual rates charged by the two banks is approx 0.22.

ABC=[(1+0.0838/12)^12]-1

=[(1+0.00698333333)^12]-1

=[(1.00698333333)^12]-1

=1.08709-1

=8.709%(Approx)

DEF=[(1+0.0864/4)^4]-1

=[(1+0.0216)^4]-1

=[(1.0216)^4]-1

=1.08924-1

=8.924%(Approx)

Hence difference=8.924-8.709

=0.22(Approx)

The Annual Rate (EAR) is an interest rate compounded over a period of time. Simply put, APR is the interest rate an investor can earn (or pay) in his one-year period after compounding.

Learn more about effective annual rates here: https://brainly.com/question/15728540

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