You are the CFO of a company and have decided that your firm needs to borrow $5 million for an expansion. Bank A quotes you 9% interest to be paid semi-annually while Bank B quotes you 8.85% interest to be paid monthly. Which bank do you borrow from and why?

You are the CFO of a company and have decided that your firm needs to borrow $5 million for an expansion. Bank A quotes you 9% interest to be paid semi-annually while Bank B quotes you 8.85% interest to be paid monthly. Which bank do you borrow from and why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

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Concept explainers

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

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