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You just borrowed money for four years to buy a car. The payments are $218 a month and the APR is 7 percent. How is the EAR computed?

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facundobuzzetti

Answer:

EAR= 0.072 = 7.2%

Explanation:

Giving the following information:

Nominal interest rate= 7%

Number of periods= 12 months

To calculate the Effective Annual Rate (EAR), we need to use the following formula:

EAR= (1 + nominal rate/number of periods)^number of periods

EAR= [(1 + 0.07/12)^12] - 1

EAR= 0.072 = 7.2%

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