bank a charges a 7.75 percent annual percentage rate and interest is due at the end of the year. bank b charges a 7 percent annual percentage rate and interest must be paid monthly. what is the effective annual rate charged by each bank

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10-11-2022
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bank a charges a 7.75 percent annual percentage rate and interest is due at the end of the year. bank b charges a 7 percent annual percentage rate and interest must be paid monthly. what is the effective annual rate charged by each bank

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abhinavjh321 abhinavjh321 · Answer 1 · 2022-11-14T14:57:24+01:00

Annual effective rate (a) =.072286 Each bank charges an annual effective rate of = 7.23%.

The effective interest rate (EIR), effective annual interest rate, annual equivalent rate (AER), or simply effective rate is the percentage of interest on a loan or financial product if compound interest accumulates over a year with no payments made. It is used to evaluate interest rates between loans with different compounding periods, such as weekly, monthly, half-yearly, or yearly. The effective interest rate is especially significant for low-income borrowers since it computes the impacts of compounding assuming no periodic payment of interest, so that future interest accrues on both the principle and the present interest. The APR, on the other hand, reflects the annual total interest charge provided periodic interest is paid as soon as it accrues.

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