Question

If I take a loan of 100,000 dollars under which interest rate is it better to pay off the loan (nominal or effective) especially if we have the nominal rate of 6% p.a that compounds half yearly?

Answer 1

@atlas

Answer 2

This is what I did:

Nominal interest rate:

INTEREST = 100,000 x 0.06 x 1 year

INTEREST = $6000

Effective interest rate:

EFF = [1+0.06/2]^2 -1 = 6.09% half yearly

INTEREST = 100,000 x 0.0609 x 2

INTEREST = $12,180

Answer 3

Am I right ? @atlas

Answer 4

yes you are right @Chad123

Answer 5

So under the nominal rate we pay less interest on the loan?

Answer 6

@atlas