Answer:
The option of borrowing fund from a finance company at 11 percent compounded quarterly is better option because it costs much lower than other option.
Explanation:
Suppose amount to be borrowed = $1
If Borrow from Finance Company
Number of compounding period in one year = 4
Interest rate = 11% = 0.11
A = P ( 1 + ( r / n ))^n
A = 1 ( 1 + ( 0.11 / 4 ))^4
A = 1.115
If Borrow from Bank
Number of compounding period in one year = 365
Interest rate = 12% = 0.12
A = P ( 1 + ( r / n ))^n
A = 1 ( 1 + ( 0.12 / 365 ))^365
A = 1.127
So, The option of borrowing fund from a finance company at 11 percent compounded quarterly is better option because it costs much lower than other option.
