Effective Annual Rate A loan is offered with monthly payments and a 6.75 percent APR. What's the loan's effective annual rate (EAR)?
EAR = [1 + 6.75/1200]^12
= [1 + 0.005625 ]^12
= [1.005625]^12
= 1.0696 - 1
=0.0696 x 100
=6.96%