Merchants Bank Offers to Lend You $30,000 at a Nominal

question 1

Multiple Choice

Merchants Bank offers to lend you $30,000 at a nominal rate of 6.0%,simple interest,with interest paid quarterly.Gold Coast Bank offers to lend you the $30,000,but it will charge 7.0%,simple interest,with interest paid at the end of the year.What's the difference in the effective annual rates charged by the two banks?

• A)1.49%
• B)1.24%
• C)1.04%
• D)0.86%

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Definitions:

Inverse Demand Function

A mathematical function that expresses the price of a good as a function of the quantity demanded.

Inverse Supply

A concept that illustrates how the quantity of goods supplied by producers decreases as the price decreases, typically represented by an upward sloping curve in economics.

Tax

A compulsory financial charge or other levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers at various prices.