You have just purchased a home by borrowing $400, 000 for 30-years at a fixed APR of 3.87%. The loan payments are monthly and interest is compounded monthly. What is the effective annual rate on the loan? (I.e., what is the interest rate once we take into account compounding?)

You have just purchased a home by borrowing $400, 000 for 30-years at a fixed APR of 3.87%. The loan payments are monthly and interest is compounded monthly. What is the effective annual rate on the loan? (I.e., what is the interest rate once we take into account compounding?)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

You have just purchased a home by borrowing
$400, 000 for 30-years at a fixed APR of 3.87%.
The loan payments are monthly and interest is
compounded monthly.
What is the effective annual rate on the loan?
(I.e., what is the interest rate once we take
into account compounding?)
0.0394
2.1239
2.0394
1.0394
O O

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