1) You have two ways to finance your new sofa; you can borrow on your credit card at 20%, compounded monthly; or borrow from a friend at 21%, semi-annually. Which is the lower rate? What is the EAR of both loans?
2) Plaza Gold Emporium wants to sell on credit, giving customers 4 months to pay. However, the firm will have to borrow from its bank to carry the accounts receivable. The bank will charge 18%, compounded monthly. The firm wants to quote a nominal rate to its customers, all of whom are expected to pay on time at the end of 4 months that will exactly cover her financing costs. What nominal annual rate should Plaza Gold quote to its credit customers?