The effective annual rate (EAR)for a loan with a stated APR of 8% compounded monthly is closest to:
A)7.72%.
B)8.00%.
C)8.30%.
D)8.66%.

Question

Quizplus · Accepted Answer

The EAR can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (0.08), n is the number of compounding periods per year (12), and t is the time in years (1). Plugging in the values, EAR = (1 + 0.08/12)^(12*1) - 1 ≈ 0.0830 or 8.30%.

The Effective Annual Rate (EAR)for a Loan with a Stated