Effective Annual Rate A loan is offered with monthly payments and a 8 percent APR. What's the loan's effective annual rate (EAR)?

The loan's effective annual rate (EAR) is 8.30%.

Explanation:

Effective Annual Rate (EAR) can be described as an interest rate which been adjusted for compounding over particular period.

EAR therefore simply refers to the interest rate paid to an investor in a year after taking compounding into consideration.

The EAR can be computed using the following formula:

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

Where;

i = Annual percentage rate (APR) = 8%, or 0.08

n = Number of compounding periods or months in a year = 12

Substituting the values into equation (1), we have:

EAR = ((1 + (0.08 / 12))^12) - 1

EAR = ((1 + 0.00666666666666667)^12) - 1

EAR = 1.00666666666666667^12 - 1

EAR = 1.08299950680751 - 1

EAR = 0.08299950680751, or 8.299950680751%

Approximating to 2 decimal places, we have:

EAR = 8.30%

Therefore, the loan's effective annual rate (EAR) is 8.30%.

answer/// product differentiation;