Carlos is fhe new assistant branch manager of a larger Florida-based bank and the branch manager...

Carlos is fhe new assistant branch manager of a larger Florida-based bank and the branch manager has asked him a question to test his knowledge. The question is which rate should the bank advertise on monthly-compounded loans, the nominal annual percentage rate or the effective annual percentage rate? Which rate should the bank advertise on quarterly-compounded savings accounts? Explain. As a consumer, which would you prefer to see and why?

Expert Solution

I would be like to see these commercial banks advertise on the effective interest rate because effective interest rates are being calculated after ascertainment of all these compounding factors and other cost involved with the operations of the bank and nominal rate is just providing with straight annual percentage rate which is not including any kind of effectiveness of the interest calculation in its overall rate so consumers are not getting the true and fair view of the rate of interest which will be charged from them and hence they always need that effective interest rate should be provided to them because it is a better way of providing them with true and fair interest rate which will be charged by the bank after inclusion of all the other charges as well

As a consumer, I would prefer to see the the effective interest rate because it is a more more inclusive method of determining the interest rates after ascertainment of all other charges which the consumer is bound to pay except than the straight flat annual rate and it will help the consumer in order to understand the rate of interest in a better manner and not get illusioned by lower rate because that will be reflected on the annual percentage basis so consumer should always be provided with the effective annual rate after taking the effect of the compounding with the respective periods along with the additional expenses

jeff jeffy answered 2 years ago

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