Question

You want to buy a new sports coupe for $71,943, and the finance office at the dealership has quoted you a 9.7 percent APR loan for 70 months to buy the car. What is the effective annual rate on this loan?

Answer 1

The effective annual rate on this loan is approximately 10.09%.

Step-by-step explanation:

To calculate the effective annual rate on a loan, we can use the following formula:

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

Where EAR is the effective annual rate, APR is the annual percentage rate, and n is the number of compounding periods per year.

Given that the APR is 9.7% and the loan term is 70 months, we need to convert the APR to a decimal and divide it by 12 to get the monthly interest rate. Plugging these values into the formula, we can calculate the effective annual rate.

EAR = (1 + 0.097/12)^12 - 1

After performing the calculations, the effective annual rate on this loan is approximately 10.09%.