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The effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly is closest to ________. A) 8.30% B) 9.13% C) 9.96% D) 10.79%

1 Answer

4 votes

Answer:

the closest answer choice is A) 8.30%.

Step-by-step explanation:

To calculate the effective annual rate (EAR) for a loan with a stated APR of 8% compounded monthly, we can use the following formula:

EAR = (1 + (APR/n))^n - 1

where APR is the stated annual percentage rate, and n is the number of times the interest is compounded per year.

In this case, APR = 8% and the interest is compounded monthly, so n = 12.

Plugging in the values, we get:

EAR = (1 + (0.08/12))^12 - 1

≈ 0.0862 or 8.62% (rounded to the nearest hundredth)

Therefore, the closest answer choice is A) 8.30%.

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