You approach your local bank for a loan. The bank quotes a rate of 5.89% with...
You approach your local bank for a loan. The bank quotes a rate of 5.89% with an effective annual rate of 6%. Does the bank use annual, quarterly, or monthly compounding?
Homework Answers
If the rate is quarterly compounded, then the effective rate is:-
=(1+5.89%/4)^4-1
=6.02%
If monthly compounding, it is 6.05%, in annual, it will be the same as APR 5.89%
Thus the closest to 6% is 6.02%, hence the answer is quarterly.
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