What is the effective interest rate for a car loan advertised at five percent compounded monthly?
A)5)1%
B)5)2%
C)5)3%
D)5)4%

Question

Quizplus · Accepted Answer

The effective interest rate is the annual interest rate that would produce the same total amount of interest as the stated interest rate compounded monthly. To calculate the effective interest rate, we use the formula:Effective interest rate = (1 + (stated interest rate / 12))^12 - 1In this case, the stated interest rate is 5%, so the effective interest rate is:Effective interest rate = (1 + (0.05 / 12))^12 - 1 = 0.05127 = 5.127%Therefore, the correct answer is A) 5.1%.

What Is the Effective Interest Rate for a Car Loan