You are considering the purchase of new living room furniture that costs $1,140. The store will allow you to make weekly payments of $25.12 for one year to pay off he loan. What is the EAR of this arrangment? Multiple Choice 27.39% 29.41% 32.99% 31.42%
You are considering the purchase of new living room furniture that costs $1,140. The store will allow you to make weekly payments of $25.12 for one year to pay off he loan. What is the EAR of this arrangment? Multiple Choice 27.39% 29.41% 32.99% 31.42%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Understanding Effective Annual Rate (EAR)
You are considering the purchase of new living room furniture that costs $1,140. The store offers a repayment plan with weekly payments of $25.12 for one year to pay off the loan. Your task is to determine the Effective Annual Rate (EAR) of this financing arrangement.
#### Multiple Choice Options:
- **27.39%**
- **29.41%**
- **32.99%**
- **31.42%**
To calculate the EAR, you can use the formula:
\[ \text{EAR} = \left(1 + \frac{i}{n}\right)^n - 1 \]
Where:
- \( i \) = nominal interest rate
- \( n \) = number of compounding periods per year
You can use these options to estimate which one reflects the true cost of borrowing based on the store's repayment terms. Calculating the EAR helps you compare this financing option against others to ensure you make an informed financial decision.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0f20cc49-c768-43e6-a9c4-6f0d40e2f4fd%2Fb9218623-e93e-4ad7-b0d8-f67d49cbca40%2Ft8zmbq8_processed.png&w=3840&q=75)
Transcribed Image Text:### Understanding Effective Annual Rate (EAR)
You are considering the purchase of new living room furniture that costs $1,140. The store offers a repayment plan with weekly payments of $25.12 for one year to pay off the loan. Your task is to determine the Effective Annual Rate (EAR) of this financing arrangement.
#### Multiple Choice Options:
- **27.39%**
- **29.41%**
- **32.99%**
- **31.42%**
To calculate the EAR, you can use the formula:
\[ \text{EAR} = \left(1 + \frac{i}{n}\right)^n - 1 \]
Where:
- \( i \) = nominal interest rate
- \( n \) = number of compounding periods per year
You can use these options to estimate which one reflects the true cost of borrowing based on the store's repayment terms. Calculating the EAR helps you compare this financing option against others to ensure you make an informed financial decision.
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