SellUCars,Inc.offers you a car loan at an annual interest rate of 8% compounded quarterly.What is the annual percentage yield of the loan?

Question

Quizplus · Accepted Answer

The annual percentage yield takes into account the effect of compounding. Using the formula A = P (1 + r/n)^(nt), where A is the amount after t years, P is the principal, r is the annual interest rate, n is the number of times compounded per year, and t is the time in years, we can solve for the annual percentage yield (APY).

APY = (1 + r/n)^n - 1
    = (1 + 0.08/4)^4 - 1
    = 0.0824 or 8.24%

Therefore, the best choice is B, 8.24%.