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Author Question: The EAR is about 6.09 if the APR is 6.01 and compounding is monthly. Indicate whether the ... (Read 80 times)

Bob-Dole

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on: Jul 10, 2018
The EAR is about 6.09 if the APR is 6.01 and compounding is monthly.
 
  Indicate whether the statement is true or false.

Question 2

When quoting rates on loans, the Truth in Lending Law requires the bank to state the rate as an APR, effectively understating the true cost of the loan when interest is computed more often than once a year.
 
  Indicate whether the statement is true or false.


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jessofishing

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Reply #1 on: Jul 10, 2018
Answer to Question 1

Answer: FALSE
Explanation: With APR = 6.01, C/Y = 12, periodic interest rate = r = 0.0050083, we have:
EAR = (1 + periodic rate)C/Y - 1 = (1.0050083)12 - 1 = 1.061783 - 1 = 0.061783, or about 6.18.

Answer to Question 2

Answer: TRUE


Bob-Dole

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Reply 2 on: Jul 10, 2018
YES! Correct, THANKS for helping me on my review

momolu

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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