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First National Bank charges \( 14.3 \) percent compounded monthly on its business loans. First United Bank charges \( 14.6 \) percent compounded semiannually. Calculate the EAR for First National Bank

User Lesleh
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EffectiveEffective Annual Rate (EAR)Effective annual rate (EAR) is the real interest rate earned on a loan or invested over a year. EAR takes into account the impact of compounding interest, which is why it's greater than the nominal interest rate.What is the EAR for First National Bank?First National Bank charges 14.3% compounded monthly on its business loans. So, the EAR of First National Bank is given by the formulaEAR = (1 + r/n) ^ n - 1where r = the annual interest rate chargedn = the number of compounding periods in a yearEAR = (1 + r/n) ^ n - 1= (1 + 14.3%/12) ^ 12 - 1= (1.011917)^12 - 1= 0.1492 or 14.92%Thus, the EAR for First National Bank is 14.92%.

User Alan Marchiori
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