The Floral Boutique approached two banks to obtain a $10,000 bank loan. Bank A will give a 120-day loan at an annual rate of 12% while Bank B will give a 90-day loan at an annual rate of 15%. Assume a 365-day year.
a. Based on the amount of interest to be paid, which bank loan should The Floral Boutique choose?
b. Compare the 120-day and 90-day rates on the loans by finding the effective annual rate for each loan. Assume each loan is rolled over throughout the year under the same terms and circumstances.
c. Based on the effective annual rate for each loan, which bank loan should The Floral Boutique choose?