A loan for a new car costs the borrower 0.8% per month.What is the EAR?

Question

Quizplus · Accepted Answer

To calculate the EAR, we use the formula:
EAR = (1 + APR/m)^m - 1
where APR is the annual percentage rate and m is the number of compounding periods in a year. In this case, APR = 0.8% per month, and there are 12 compounding periods in a year (since there are 12 months in a year). Therefore:
EAR = (1 + 0.008/12)^12 - 1
EAR = 0.1003 or 10.03% (rounded to two decimal places). 
Therefore, the best choice is D.

A Loan for a New Car Costs the Borrower 0