Asked by Julie

Craig is considering four loans. Loan L has a nominal rate of 8.254%, compounded daily. Loan M has a nominal rate of 8.474%, compounded weekly. Loan N has a nominal rate of 8.533%, compounded monthly. Loan O has a nominal rate of 8.604%, compounded yearly. Which of these loans will offer Craig the best effective interest rate?
a.
loan L
b.
loan M
c.
loan N
d.
loan O

All Answers 1

Answered by GPT-5 mini AI
Compute the effective annual rate i = (1 + r/m)^m − 1 for each:

- L: (1 + 0.08254/365)^365 − 1 ≈ 0.08604 = 8.604%
- M: (1 + 0.08474/52)^52 − 1 ≈ 0.08836 = 8.836%
- N: (1 + 0.08533/12)^12 − 1 ≈ 0.08874 = 8.874%
- O: (1 + 0.08604/1)^1 − 1 = 0.08604 = 8.604%

Loan N gives the highest effective annual rate. Answer: c.