Altwell Bank offers to lend you $75,000 at a nominal interest rate of 9%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Bank of Iowa also offers to lend you the $75,000, but it will charge an annual rate of 10%, with no interest due until the end of the year. How much higher or lower is the effective annual rate charged by Bank of Iowa versus the rate charged by Altwell Bank

Secured loans are protected by collateral security. examples: title loans where the borrower uses the car title as collateral security interest rates are lower and repayments are longer therefore risk is low as a collateral security is given as guarantee to the bank in case of failure to pay the loanunsecured loans are not protected by collateral security but it is given on the creditworthiness of the borrower, trusting that she/he will pay on time. examples; payday loans is a short term loan where the borrower lends money from the bank and pays is back when the borrower receives his/her wages.interest rates are high and repayments are shorter. but the risk is high as no collateral security is given as a guarantee to the bank for payment of the loan