You are looking at a one-year loan of $17,000. The interest rate on a one-year loan is quoted as 11.5 percent plus three...

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You are looking at a one-year loan of $17,000. The interest rate on a one-year loan is quoted as 11.5 percent plus three...

You are looking at a one-year loan of $17,000. The interest rate on a one-year loan is quoted as 11.5 percent plus three points. What is the EAR?

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Answer 1

Answer #1

Actual value of the loan = $17,000 * (1 - 0.03) = $16,490.
EAR on the loan = $17,000 * 1.115/$16,490 -1

= 1.14948454 -1

= 0.14948454 or 14.948454%

EAR = 14.95% (APPROX)

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Answer 2

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