Your bank has agreed to grant you a discount loan with an APR of 5.00%.If you need $5,000 today,the loan is to be repaid in full in one year,and the total interest to be paid is $277,what is the EAR of the loan?

Question

Quizplus · Accepted Answer

To find the EAR, we need to use the formula:

EAR = (1 + APR / m)^m - 1

Where m is the number of compounding periods per year. Since the loan has an APR of 5.00%, we can assume that it is compounded once a year, so m = 1.

Let's plug in the values we have:

EAR = (1 + 0.05 / 1)^1 - 1
EAR = 0.055 or 5.54%

So the answer is B) 5.54%

Your Bank Has Agreed to Grant You a Discount Loan