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Question 8 • 2025-2026 GSP Mathematical Reasoning for Decision Making

RJ has two loans. Loan H has a nominal rate of 5.68%, compounded daily. Loan I has a nominal rate of 6.33%, compounded monthly. Which loan's effective rate had the greater increase, relative to its nominal rate, and how much greater is its increase than that of the other loan?

Answer
A
Loan I’s increase was 0.03 percentage points greater than Loan H’s.
B
Loan I’s increase was 0.68 percentage points greater than Loan H’s.
C
Loan H’s increase was 0.16 percentage points greater than Loan I’s.
D
Loan H’s increase was 0.49 percentage points greater than Loan I’s.

Explanation

Use the effective annual rate formula: (1 + nominal rate ÷ compounding periods)^(compounding periods) − 1. Loan H’s effective rate is about 5.842%, an increase of about 0.162 percentage points over 5.68%. Loan I’s effective rate is about 6.514%, an increase of about 0.184 percentage points over 6.33%. Loan I’s increase is therefore about 0.022 percentage points greater, which rounds to 0.03 percentage points.

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