You Are Considering Two Loans

question 85

Multiple Choice

You are considering two loans. The terms of the two loans are equivalent with the exception of the interest rates. Loan A offers a rate of 7.45% compounded daily. Loan B offers a rate of 7.5% compounded semi-annually. Loan _____ is the better offer because ______.

• A) A; you will pay less interest
• B) A; the annual percentage rate is 7.45%
• C) B; the annual percentage rate is 7.64%
• D) B; the interest is compounded less frequently
• E) B; the effective annual rate is 7.64%

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Definitions:

Average Variable Cost Curve

A graphical representation that shows the change in variable cost per unit of output as the level of production is altered.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, leading to cost per unit of output decrease with increasing scale.

Average Fixed Costs

The constant expenses in production, which remain unchanged regardless of output levels, when divided by the volume of output created.

U-shaped

A description often used in economics to describe the graphical representation of a situation where certain costs initially decrease, reach a minimum, and then start to increase as output expands.