Question
Which terms are preferable for a borrower: (i) an annual interest rate of $21.5 \%$, with interest paid yearly; or (ii) an annual interest rate of $20 \%$, with interest paid quarterly?
Step 1
The EAR takes into account the compounding effect of interest payments made more frequently than once a year. Option (i): The interest rate is 21.5% per year, and interest is paid yearly. Show more…
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