The buyer of a new home is quoted a mortgage rate of 0.5% per month.What is the APR on the loan?
A) 0.50%
B) 5.0%
C) 6.0%
D) 6.5%

Question

Quizplus · Accepted Answer

To convert the monthly interest rate to an annual percentage rate (APR), we need to use the following formula:

APR = (1 + monthly interest rate)^12 – 1

Substituting 0.5% for the monthly interest rate, we get:

APR = (1 + 0.005)^12 – 1
    = 1.061678 – 1
    = 0.061678 or 6.1678%

Therefore, the APR on the loan is 6.0%, which corresponds to answer choice C.

The Buyer of a New Home Is Quoted a Mortgage