Question

First National Bank charges 10.9% compounded monthly on its business loans.First United Bank charges 11.1 percent compounded semi-annually. Calculate the EAR for each bank. Please show all answers and calculations.

Answer 1

EAR = (1+ r/n)^n-1

r = stated rate

n = number of compounding per year ( 12 incase of monthly compounding......, 2 in case of semi annual compounding).

now,

First national bank :

EAR = (1+ 0.109/12)^12 -1

=>1.11461371-1

=>0.11461371

=>11.46%.

First united bank:

(1+0.111/2)^2-1

=>1.11408025-1

=>0.11408025

=>11.41%.