Problem:
Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Midwest Bank also offers to lend you the $50,000, but it will charge an annual rate of 6.3%, with no interest due until the end of the year.
Required:
Question: How much higher or lower is the effective annual rate charged by Midwest versus the rate charged by Riverside?
-.30%
-.40%
-.38%
-.43%
-.49%