Southwestern Bank Offers to Lend You $50,000 at a Nominal

question 91

Multiple Choice

Southwestern Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly.The loan (principal plus interest) must be repaid at the end of the year.Woodburn Bank also offers to lend you the $50,000, but it will charge an annual rate of 7.0%, with no interest due until the end of the year.How much higher or lower is the effective annual rate charged by Woodburn versus the rate charged by Southwestern?

• A) 0.52%
• B) 0.44%
• C) 0.36%
• D) 0.30%
• E) 0.24%

---

Definitions:

Satisfaction

The level of contentment or fulfillment received from consuming a product or service.

Usefulness

The ability or quality of being able to serve a purpose effectively or efficiently.

Utility

A term in economics that refers to the total satisfaction received from consuming a good or service.

Satisfaction

The fulfillment of one's wishes, expectations, or needs, or the pleasure derived from this fulfillment.