Author Question: The EAR is about 6.09 if the APR is 6.01 and compounding is monthly. Indicate whether the ... (Read 83 times)

Bob-Dole · **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.

jessofishing · **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