A bank offers a loan that will require you to pay 6% interest compounded monthly. Which of the following is closest to the EAR charged by the bank?

Question

Quizplus · Accepted Answer

The EAR (Effective Annual Rate) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (0.06), n is the number of compounding periods per year (12), and t is the number of years (1). Plugging in the values, EAR = (1 + 0.06/12)^(12*1) - 1 ≈ 6.17%.

A Bank Offers a Loan That Will Require You to Pay