Use of Financial Calculator TI BA II Plus required. Which would be the best loan offer? Loan A has a 9.5 percent rate calculated quarterly and Loan B has a 9.25 percent rate calculated monthly. Recall the use of the calculator keys to compare annual effective rates of interest.

Question

Quizplus · Accepted Answer

To compare the annual effective rates of interest, we need to convert both rates to annual rates. Using the calculator, the effective rate for Loan A is ((1+0.095/4)^4)-1 = 9.84% and for Loan B is ((1+0.0925/12)^12)-1 = 9.65%. Therefore, Loan B has a lower annual effective rate and is the better choice.

Use of Financial Calculator TI BA II Plus Required