You are considering a car loan with a stated APR of 5.42 % based on monthly compounding. What is the effective annual rate of this loan? The effective annual rate is nothing %. (Round to two decimal places.)

The effective annual rate is 5.57%

Explanation:

The interest rate that is actually earned or paid on investment or loan including the compounding effect over a given period of time. It is also known as rate.

Effective interest rate = [ (1 + r/m) ^m ] - 1

Effective interest rate = [ (1 + 5.42%/12) ^12 ] - 1

Effective interest rate = [ (1 + 0.0542/12) ^12 ] - 1

Effective interest rate = 0.055567 x 100

Effective interest rate = 5.5667% = 5.57%