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faltersainse [42]
3 years ago
9

Effective annual rate: Raj Krishnan bought a Honda Civic for $17,345. He put down $6,000 and financed the rest through the deale

r at an APR of 4.9 percent for four years. What is the effective annual rate (EAR) if the loan payments are made monthly
Business
1 answer:
g100num [7]3 years ago
3 0

Answer:

EAR = 5.01%

Explanation:

Given that

APR = 4.9% = 0.049

Loan amount = initial amount - deposited amount

= 17345 - 6000

= 11,345

PV = 11345

Frequency of compounding, m = 12

Recall that

EAR = (1 + r/m)^n - 1

Thus,

= (1 + 0.049/12)^12 - 1

= 1+ 0.049/12^12 - 1

= 1.0501 - 1

= 0.0501 ×100

= 5.01%

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