ritchieandrew8223 ritchieandrew8223
  • 05-02-2020
  • Business
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A car loan requiring quarterly payments carries an APR of 8%. What is the effective annual rate of interest?

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TomShelby
TomShelby TomShelby
  • 05-02-2020

Answer:

Effective annual rate 8.24%

Explanation:

We solve for the effective rate by calcualte how much is the value of the APR with quarterly compounding.

[tex](1+\frac{APR}{M} )^m = 1 + EAR[/tex]

[tex](1+0.08/4)^4 = 1+ EAR\\(1+0.08/4)^4 -1 = EAR\\\\EAR = 0.08243216[/tex]

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