Suppose Community Bank offers to lend you $10,000 for one year at a nominal annual rate of 6.50%,but you must make interest payments at the end of each quarter and then pay off the $10,000 principal amount at the end of the year.What is the effective annual rate on the loan?

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11ea856c_8be8_e758_9aec_09e08e83d677_TB1222_00 You could also find the EFF% as follows: Interest paid each quarter = Loan × rate/4 = Qtrly PMT = $162.50 Then find the IRR as a quarterly rate and convert to an annual rate.This procedure is obviously longer. 11ea856c_8be9_0e69_9aec_eb0a9cedc3e2_TB1222_00 ?Annual effective rate = 6.66% vs.nominal rate = 6.50%

Suppose Community Bank Offers to Lend You $10,000 for One