You Need to Borrow $25,000 for One Year

question 66

Multiple Choice

You need to borrow $25,000 for one year.Your bank offers to make the loan,and it offers you three choices: (1) 15 percent simple interest,annual compounding;(2) 13 percent simple interest,daily compounding (360-day year) ;(3) 9 percent add-on interest,12 end-of-month payments.The first two loans would require a single payment at the end of the year,the third would require 12 equal monthly payments beginning at the end of the first month.What is the difference between the highest and lowest effective annual rate?

• A) 1.12%
• B) 2.48%
• C) 3.60%
• D) 4.25%
• E) 5.00%

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Definitions:

Electromagnet

A type of magnet whose magnetic field is produced by the flow of electric current, typically wrapped around a core of ferromagnetic material.

Color Band

Colored stripes on components like resistors, used to indicate their value or rating.

Tolerance

The allowable deviation in the specifications of a component or system from the stated values, which can affect its performance or compatibility.

Multiplier

A component that increases the range of a measuring device by appropriately scaling the input quantity.