A bank is willing to lend B&B $100,000 for 1 year at an 8 percent nominal rate. What is the EAR under the following five loans?

1. Simple annual interest, 1 year.

2. Simple interest, paid monthly.

3. Discount interest.

4. Discount interest with 10 percent compensating balance.

5. Installment loan, add-on, 12 months.

Previous slide

Next slide

Back to first slide

View graphic version