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First National Bank charges 13.9 percent compounded monthly on its business loans. First United Bank charges 14.2 percent compounded semiannually. Calculate the EAR for First National Bank and First United Bank.

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Answer:

EAR for First National Bank is 14.82%

EAR for First United Bank = is 14.70%

Explanation:

Effective Annual Rate (EAR) = (1 + stated rate/ number of compounding periods)^number of compounding periods - 1

EAR for First National Bank = (1+13.9%/12)^12 - 1 = 14.82%

EAR for First United Bank = (1+14.2%/2)^2 - 1 = 14.70%

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