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Suppose that a company borrows $20,000 for 1 year at a stated rate of interest of...

  1. Suppose that a company borrows $20,000 for 1 year at a stated rate of interest of 9%. What is the annual percentage rate (APR) if interest is paid to the lender
    1. Annually
    2. Semiannually
    3. Quarterly
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Answer #1

Answer (a):

Annual percentage rate (APR) if interest is paid to the lender annually = Stated rate = 9%

Annual percentage rate (APR) if interest is paid to the lender annually = 9%

Answer (b):

Annual percentage rate (APR) if interest is paid to the lender Semiannually = (1 + Stated rate / 2) 2 - 1

= (1 + 9% / 2) 2 - 1

= 9.20%

Annual percentage rate (APR) if interest is paid to the lender Semiannually = 9.20%

Answer (c):

Annual percentage rate (APR) if interest is paid to the lender Quarterly = (1 + Stated rate / 4) 4 - 1

= (1 + 9% / 4) 4 - 1

= 9.31%

Annual percentage rate (APR) if interest is paid to the lender Quarterly = 9.31%

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