Question

The buyer of a new home is quoted a mortgage rate of 0.5% per month. The APR and EAR on the loan are ________ and ________, respectively.

Group of answer choices

a.6.17%, 6.00%

b. 5.12%, 6%

c. 6.00%, 6.17%

d. 6%, 5.12%

Answer 1

Annual Percentage Rate (APR)

Annual Percentage Rate (APR) = Monthly interest rate x 12 Months

Annual Percentage Rate (APR) = 0.50% per month x 12 Months

Annual Percentage Rate (APR) = 6.00%

Effective Annual Rate (EAR)

Effective Annual Rate (EAR) = [(1 + Monthly interest rate)^n] - 1

Effective Annual Rate (EAR) = [(1 + r)^n] - 1

Effective Annual Rate (EAR) = [(1 + 0.0050)^12] - 1

Effective Annual Rate (EAR) = [(1.0050)^12] - 1

Effective Annual Rate (EAR) = 1.061677812 - 1

Effective Annual Rate (EAR) = 0.061677812 or

Effective Annual Rate (EAR) = 6.17% (Rounded to 2 decimal)

The APR and EAR on the loan are 6.00% and 6.17% respectively.

So, the answer woll be c. 6.00%, 6.17%

answered by: anonymous