Question

Magna Corporation has an issue of commercial paper with a face value of $ 1 comma 000 comma 000 and a maturity of six months. Magna received net proceeds of $ 973 comma 710 when it sold the paper. What is the effective annual rate ​(EAR​) of the paper to​ Magna?

Answer 1

The effective annual rate ​(EAR​) of the paper to​ Magna is 5.47%

Step-by-step explanation:

interest rate = [1000000 - 973710]/[973710]

= 2.7%

EAR = (1 + interest rate)^2 - 1

= (1 + 2.7%)^2 - 1

= 5.47%

Therefore, The effective annual rate ​(EAR​) of the paper to​ Magna is 5.47%