Your Company Is Able to Arrange Financing at Either a Rate

question 100

Multiple Choice

Your company is able to arrange financing at either a rate of 12.75% annually,or at a rate of 12% compounded monthly.Assuming financing is needed for one year,which rate is the best?

• A) 12% compounded monthly, because the annual percentage yield is 12.68%.
• B) 12.75% annually, because the annual percentage yield for 12% compounded monthly is greater than 12.75%.
• C) 12.75% annually, because even though the annual percentage yield is higher, interest if paid only once per year at year end.
• D) Both rates are effectively the same, so your company should be indifferent between the two.

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Definitions:

Prejudice

An unjustified negative attitude toward an individual based on the individual’s membership in a group.

Unjustified Negative

Refers to a negative outcome or judgment that is not supported by evidence or reasoning.

Membership

The state of belonging to a group or organization with a common interest or purpose.

In-Group Favoritism

The tendency to favor members of one's own group over those from external groups in terms of trust, favor, or privilege.