Answer to Question #59820 in Finance for Noja

Question

1- You have just been promoted as the new assistant branch manager of a local-based
international bank. The branch manager, who is an expatriate, has asked you a question on
the different types of interest rate quotations. The question he asked is which rate should
the bank advertise on monthly-compounded loans - the nominal annual percentage rate or
the effective annual percentage rate? And which rate should the bank advertise on
quarterly-compounded savings accounts? Please explain to the branch manager which
quotation would attract consumers and why?

Answer 1

If the question the manager asked is which rate should the bank advertise on monthly-compounded loans - the nominal annual percentage rate or the effective annual percentage rate, then as the effective annual percentage rate is much more higher, then the bank should advertise on the nominal annual percentage rate. And concerning the rate on quarterly-compounded savings accounts the bank should advertise on the effective annual percentage rate, because it is higher and more attractive for the customers who want to place a time deposit.