1a. Calculating EAR. First National Bank charges 12.4 percent compounded monthly on its business loans. First United Bank charges 12.7 percent compounded semiannually. As a potential borrower, which bank would you go to for a new loan?
1b. You have the opportunity to make an investment that costs $900,000. If you make this investment now, you will receive $100,000 one year from today, $250,000 and $800,000 two and three years from today, respectively. The appropriate discount rate is 12%. Should you make the investment?