1 answer

11. Your banker quotes you a one year loan at 10.5% APR compounded annually. The effective...

Question:

11. Your banker quotes you a one year loan at 10.5% APR compounded annually. The effective annual rate (EAR) is: A. greater t

11. Your banker quotes you a one year loan at 10.5% APR compounded annually. The effective annual rate (EAR) is: A. greater than 10.5% B. less than 10.5% C. equal to 10.5% D. cannot be determined

Answers

EAR=[(1+APR/m)^m]-1
where m=compounding periods

=[(1+0.105/1)^1]-1

=10.5%

Hence the correct option is:

Equal to 10.5%

.

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