Answer :
Answer:
As EAR for First United Bank is less than EAR for First National Bank so I would go to First United Bank for a new business loan.
Explanation:
In order to solve this question, we need to understand what Effective Annual Rate (EAR) and Annual Percentage Rate (APR) is.
Effective Annual Rate (EAR):
The rate of interest earned by taking compound interest into account in a year is called Effective Annual Rate (EAR).
Annual Percentage Rate (APR):
The rate of interest described as a yearly rate is called Annual Percentage Rate (APR).
Formula for calculating EAR:
EAR = ( 1 + APR / m )^m-1
where
EAR = Effective Annual Rate
APR = Annual Percentage Rate
m = compounding periods
Calculation for First National Bank:
By putting the values in the above formula, we get
EAR for First national Bank = ( 1 + .131 / 12 )^12 - 1
EAR = 13.92%
Calculation for First United Bank:
By putting the values in the above formula, we get
EAR for First United bank = ( 1 + .134 / 2 )^2 - 1
EAR = 13.85%
As EAR for First United Bank is less than EAR for First National Bank so I would go to First United Bank for a new business loan.