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The stated interest rate (or APR) that a bank charges on its home loans is 9.00%...

The stated interest rate (or APR) that a bank charges on its home loans is 9.00% and the effective annual interest rate has been computed as 9.38%. Based on this information, interest is most likely being compounded on a:

Solutions

Expert Solution

APR = 9%

EAR = 9.38%

Therefore, the relationship between APR and EAR is as follows

1+ EAR = [1 + (APR)/n]^n

1+9.38% = [1+ (9%/n]^n

On trial and error basis, if n is considered 12 that is monthly compounding then the equation will be balanced

1.0938 = [1+ (9%/12)]^12

1.0938 = 1.0938

Therefore, The stated interest rate (or APR) that a bank charges on its home loans is 9.00% and the effective annual interest rate has been computed as 9.38%. Based on this information, interest is most likely being compounded on a Monthly basis

jeff jeffy answered 2 years ago
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