Neco 2023 Commerce Question 32

Practice objective / multiple choice question 32 from the 2023 Neco Commerce examination.

Neco 2023 Commerce Objective / Multiple Choice Medium Difficulty
Question 32 NECO • 2023 • COMMERCE • objective

An entrepreneur needs \(\text{₦}2,000,000\) for a six‑month project. Bank A offers a discount loan at 15\% discount on the face amount, payable at maturity, and charges a processing fee of \(\text{₦}20,000\). Bank B offers a simple‑interest loan at 12\% per annum, payable at maturity, and charges a loan‑establishment fee of \(\text{₦}30,000\). Both loans have a term of six months. Calculate the effective annual interest rate for each loan and state which loan is cheaper.

Answer Options

A. Bank A is cheaper; its effective annual interest rate is approximately 14.5\% (Bank B's rate is about 39.0\%).
B. Bank B is cheaper; its effective annual interest rate is approximately 16.00\% (Bank A's rate is about 40.00\%).
C. Bank B is cheaper; its effective annual interest rate is approximately 13.80\% (Bank A's rate is about 37.50\%).
Correct Answer D. Bank B is cheaper; its effective annual interest rate is approximately 15.23\% (Bank A's rate is about 38.10\%).
Correct Answer
D
Correct Option:
Bank B is cheaper; its effective annual interest rate is approximately 15.23\% (Bank A's rate is about 38.10\%).

About This Question

This is Neco 2023 Commerce Question 32. It is one of the objective questions from the 2023 Neco Commerce examination.

Difficulty level: Medium .

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