A loan is offered with monthly payments and a 10 percent APR. What is the loan's effective annual rate (EAR)?
A) 10.00 percent
B) 10.47 percent
C) 11.20 percent
D) 12.67 percent

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 and n is the number of compounding periods per year. In this case, with a 10 percent APR and monthly payments (n = 12), the EAR is calculated as (1 + 0.10/12)^12 - 1, which equals approximately 10.47 percent.

A Loan Is Offered with Monthly Payments and a 10