You wish to borrow $1,000 for 8 years to start a business. You approach different lenders...

You wish to borrow $1,000 for 8 years to start a business. You approach different lenders who have the following offers. Which is the best lender to borrow from? All percentage rates are rounded to 6 decimal places.

Select one:

a. 9.645476% pa APR compounding quarterly where there are exactly 4 quarters per year.

b. 9.539758% pa APR compounding weekly where there are exactly 52 weeks per year.

c. 2.411369% as an effective quarterly rate where there are exactly 4 quarters per year.

d. 4.239326% as an effective semi-annual rate where there are exactly 2 semi-annual periods per year.

e. I'll lend you the $1,000 now if you pay me a single payment of $2,143.59 in 8 years, with no other payments in between.

Expert Solution

We calculate Effective annual rate (EAR) for each option to find out the lowest EAR.

Formula used:

Since EAR is lowest for option d. Option d is best lender to borrow from.

jeff jeffy answered 2 years ago

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