Partners bank offers to lend you $50,000 at a nominal rate of 5.0%, simple interest, with interest paid quarterly. an offer to lend you the $50,000 also comes from community bank, but it will charge 6.0%, simple interest, with interest paid at the end of the year. what's the difference in the effective annual rates charged by the two banks?

Annual rates offered by Partners Bank will cost you $7,000 more than annual rates offered by Community Bank.

Explanation:

a). Partners Bank

Simple interest(I)=P×R×T

where;

P=Principal Amount=$50,000

R=Interest Rate=5%=5/100=0.05

T=Number of payment periods in a year=4

Replacing;

Simple interest(I)=50000×0.05×4)=$10000

Total amount to be paid after 1 year=Principal+Interest

where;

Principal=$50,000

Interest=$10000

Total amount to be paid after 1 year=(50000+10000)=$60,000

b). Community Bank

Simple interest(I)=P×R×T

where;

P=Principal Amount=$50,000

R=Interest Rate=6%=6/100=0.06

T=Number of payment periods in a year=1

Replacing;

Simple interest(I)=50000×0.06×1)=$3,000

Total amount to be paid after 1 year=Principal+Interest

where;

Principal=$50,000

Interest=$3,000

Total amount to be paid after 1 year=(50000+3000)=$53,000

Difference between Partners Bank and Community Bank=(Partners Bank-Community Bank)=(60000-53000)=$7,000

Annual rates offered by Partners Bank will cost you $7,000 more than annual rates offered by Community Bank.

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