You can borrow $75,000 for six months at a stated annual rate of 8%. Calculate the effective annual interest rate.

Question

Quizplus · Accepted Answer

The effective annual interest rate (EAR) can be calculated using the formula: EAR = (1 + i/n)ⁿ - 1, where i is the nominal rate and n is the number of compounding periods per year. For this problem, i = 0.08 and n = 2 (since the loan is for six months, compounding semi-annually). EAR = (1 + 0.08/2)² - 1 = 8.16%.

You Can Borrow $75,000 for Six Months at a Stated