What is the EAR for a $100 loan when the interest is compounded monthly and the stated annual interest rate is 6.00 percent?
A)6.00 percent
B)6.39 percent
C)6.17 percent
D)7.52 percent
E)8.21 percent

Question

Quizplus · Accepted Answer

To calculate the Effective Annual Rate (EAR), we need to first find the monthly interest rate. This can be done by dividing the stated annual interest rate by 12 (since interest is compounded monthly): 
Monthly interest rate = 6.00% / 12 = 0.5%
Next, we can use the following formula to calculate the EAR: 
EAR = (1 + (monthly interest rate))^12 - 1
EAR = (1 + 0.5%)^12 - 1
EAR = 6.17%
Therefore, the answer is C.

What Is the EAR for a $100 Loan When the Interest