Question

Effective annual rate a loan is offered with monthly payments and a 10 percent apr. what is the loan's effective annual rate (ear)? group of answer choices

a. 10.47 percent
b. 12.67 percent
c. 10.00 percent
d. 11.20 percent

Answer 1

The effective annual rate (EAR) for a loan with a 10 percent APR and monthly payments is approximately 10.47 percent. Therefore correct option is A

Step-by-step explanation:

The question asks for the calculation of the effective annual rate (EAR) of a loan with a 10 percent annual percentage rate (APR) and monthly payments. The EAR can be calculated from the APR using the formula:
EAR = (1 + i/n)^n - 1, where i is the APR and n is the number of compounding periods per year.

In this case, i=0.10 (or 10%) and n=12 (since the loan compounds monthly).

Thus, EAR = (1 + 0.10/12)^12 - 1. By calculating this, we find that EAR is approximately 0.1047 or 10.47%.

Therefore, the correct answer from the provided choices is:
a. 10.47 percent