You Go to Three Different Banks to Borrow R10,000 for One

question 46

Multiple Choice

You go to three different banks to borrow R10,000 for one year.Each says it will lend you the money at 10 percent, but their terms differ as follows: Banks A and C require a single payment at the end of the year.Bank B requires 12 equal monthly payments beginning at the end of the first month.What is the difference between the highest and lowest effective annual rate in this case?

• A) 13.0%
• B) 9.5%
• C) 9.0%
• D) 8.5%
• E) 8.0%

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Definitions:

Right Margin

The right boundary of a text block in a document, where the line of text ends on the right side.

Limbs

Refers to the arms and legs.

Simultaneous

Occurring at the same time.

Anterior Axillary Line

An imaginary line drawn along the body from the armpit (anterior axilla) down through the point at which the arm joins the body.