A loan that compounds interest monthly has an APR of 22 percent. What is the EAR?...

Question

Question

A loan that compounds interest monthly has an APR of 22 percent. What is the EAR?

business finance

Answer 1

Answer #1

Formula for effective interest rate is:

r = (1+i/n) ⁿ – 1

r = Effective interest rate (EAR)

i = Stated interest rate (APR) = 22 %

n = No. of compounding periods in a year = 12

r = (1+ 22 %/12) ¹² – 1

= (1+ 0.22/12)¹² – 1

= (1+ 0.0183333333333333)¹² – 1

= (1.0183333333333333)¹² – 1

= 1.24359657794443 – 1

= 0.24359657794443 or 24.36 %

EAR of the loan is 24.36 %

Hence option “a) 24.36 percent” is correct answer.

Answer 2

Similar Homework Help Questions

A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this,...

A loan has an APR of 8.5 percent and an EAR of 8.5 percent. Given this, the loan must: A. have a one-year term. B. have a zero percent interest rate. C. charge interest annually. D. must be an interest-only loan. E. require the accrued interest be paid in full with each monthly payment.
ysb A loan that compounds interest monthly has an EAR of 14.40 percent. What is the...

ysb A loan that compounds interest monthly has an EAR of 14.40 percent. What is the APR? 919 no 2le ns notni s2.8 ineng yd ynotnevni ati allo evods to ono. B. 13.96 percent D. 13.53 percent A. 14.10 percent C. 13.59 percent 6.You just turned 21 years old and want to retire when you turn 65. You expect to live for 25 years after retirement and want to withdraw $8,000 per month in retirement, starting one month after your...
QUESTION 15 A loan has an APR of 85 percent and an EAR of 85 percent...

QUESTION 15 A loan has an APR of 85 percent and an EAR of 85 percent Given this the loan must have a one-year term have a zero percent interest rate charge Interest annually be partially amortized with each loan payment require the accrued Interest be paid in full with each monthly payment det of 532.500, and total of 8.700 h ory is $13.00, what is the current rutie QUESTION 17 Aberton's has total assets of 5537 000, nefesses of...

25. You have an outstanding loan with an EAR of 10.5 percent. What is the APR...

25. You have an outstanding loan with an EAR of 10.5 percent. What is the APR if interest is compounded monthly? 26. Curtis Builders is borrowing $150,000 today for 5 years. The loan is an interest-only loan with an APR of 9.5 percent. Payments are to be made annually. What is the amount of the first annual payment? 27. What is the future value of a lump sum of $100,000 invested for 6 years at an annual return of 4.0%...
A loan is offered with monthly payments and a 12.50 percent APR. What’s the loan’s effective annual rate (EAR)? (Do not...

A loan is offered with monthly payments and a 12.50 percent APR. What’s the loan’s effective annual rate (EAR)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)
To borrow $3,700, you are offered an add-on interest loan at 9.3 percent with 12 monthly...

To borrow $3,700, you are offered an add-on interest loan at 9.3 percent with 12 monthly payments. Compute the 12 equal payments. (Round your answer to 2 decimal places.) Equal payment Use the amount you borrowed and the monthly payments you computed to calculate the APR of the loan. Then, use that APR to compute the EAR of the loan. (Do not round intermediate calculations and round your final answer to 2 decimal places.) EAR %

A bank offers a loan that will require you to pay 7% APR interest with monthly...

A bank offers a loan that will require you to pay 7% APR interest with monthly compounding. Compute the EAR charged by the bank.
To borrow $2,300. you are offered an add-on interest loan at 10.3 percent with 12 monthly...

To borrow $2,300. you are offered an add-on interest loan at 10.3 percent with 12 monthly payments. Compute the 12 equal payments. (Round your answer to 2 decimal places.) Use the amount you borrowed and the monthly payments you computed to calculate the APR of the loan. Then, use that APR to compute the EAR of the loan. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
Problem 5-46 EAR of Add-On Interest Loan (LG5-7, LG5-8)

Problem 5-46 EAR of Add-On Interest Loan (LG5-7, LG5-8) To borrow $1,350, you are offered an add on interest loan at 8.7 percent with 12 monthly payments. Compute the 12 equal payments. (Round your answer to 2 decimal places.) Use the amount you borrowed and the monthly payments you computed to calculate the APR of the loan. Then, use that APR to compute the EAR of the loan. (Do not round intermediate calculations and round your answer to 2 decimal places.)

To borrow $1,450, you are offered an add on interest loan at 8.5 percent with 12 monthly payments

To borrow $1,450, you are offered an add on interest loan at 8.5 percent with 12 monthly payments. Compute the 12 equal payments. (Round your answer to 2 decimal places.) Use the amount you borrowed and the monthly payments you computed to calculate the APR of the loan. Then, use that APR to compute the EAR of the loan. (Do not round intermediate calculations and round your answer to 2 decimal places.)