ABC Ltd borrowed $152,300 from a bank for three years. If the quoted rate (APR) is 11.75 per cent, and the compounding is daily, what is the effective annual rate (EAR)? (Round to one decimal place.)

Question

Quizplus · Accepted Answer

The Effective Annual Rate (EAR) can be calculated using the formula: EAR = (1 + APR/n)ⁿ - 1, where APR is the annual percentage rate (11.75% or 0.1175 as a decimal) and n is the number of compounding periods per year. For daily compounding, n = 365. Plugging the values into the formula gives EAR = (1 + 0.1175/365)^(365) - 1, which approximately equals 0.1249 or 12.5% when rounded to one decimal place.

ABC Ltd Borrowed $152,300 from a Bank for Three Years