After Brittney graduates from college, he wants to reward herself by purchasing a new car for $6081

Finance Jan 17, 2021

After Brittney graduates from college, he wants to reward herself by purchasing a new car for $6081. Since Brittney has no money, she plans to take a bank loan. The bank agrees to give him 24 months’ loan with 9.92 percent annual interest rate compounded semiannually. What is the effective annual rate on this loan?

Select one:

a. 10.17 percent

b. 10.30 percent

c. 10.38 percent

d. 10.41 percent

Expert Solution

Effective rate = (1+Semi annual rate)^Periods - 1

Effective rate = (1+(9.92%/2))^2 - 1

Effective rate = (1+4.045%)^2 - 1

Effective rate = 1.1017 - 1

Effective rate = 10.17 or 10.17%

Answer: 10.17%

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