The Friendly Bank wants to earn an effective rate of 9% on its auto loans. If interest is compounded monthly, what APR must they charge?

Question

Quizplus · Accepted Answer

To find the APR, use the formula for the effective annual rate: (1 + i/n)^(n*t) - 1 = EAR, where i is the nominal rate, n is the number of compounding periods per year, and t is the number of years. Solving for i when EAR is 9% and n is 12 gives approximately 8.65%.

The Friendly Bank Wants to Earn an Effective Rate of 9