Use of Financial Calculator TI BA II Plus required. Beth wants to borrow $18 000 for five years and she has a choice of two loans. One carries an annual rate of 10 percent and the other a 9.5 percent rate compounded semi-annually. Which is her best choice? Calculate the answer by comparing the effective annual rates of interest.
A)The effective annual rate is 10.2 percent, so the 10 percent annual loan is the best choice.
B)The effective rates to compare are 9.72 percent and 10 percent, so the semi-annual 9.5 percent loan is the better choice.
C)The effective rates to compare are 9.09 percent and 8.56 percent, making the 10 percent loan the better choice.
D)The 9.5 percent semi-annual effective rate is 9.92 percent, making that loan the best choice.

Question

Quizplus · Accepted Answer

The effective annual rate for the 9.5% compounded semi-annually is calculated as (1 + 0.095/2)^2 - 1 = 9.72%. Comparing this with the 10% annual rate, the 9.5% loan is better.

Use of Financial Calculator TI BA II Plus Required