Quarterly rate would be equivalent to rate charged by bank

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Reference no: EM131967052

Longhorn can borrow from its bank for one month. The loan will have to be “rolled over” at the end of the month, but Longhorn is sure the rollover will be allowed. The nominal interest rate is 16 percent, but interest will have to be paid at the end of each month, so the bank interest rate is 16 percent, monthly compounding. Alternatively, Longhorn can borrow from an insurance company at a nominal rate that would involve quarterly compounding. What nominal quarterly rate would be equivalent to the rate charged by the bank?

Reference no: EM131967052

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