Your bank has agreed to grant you a discount loan with an APR of 5.25%. If you need $5,000 today, the loan is to be repaid in full in one year, and the total interest to be paid is $277, what is the EAR of the loan?
A) 5.25%
B) 5.54%
C) 5.73%
D) 5.91%
Answer: B
Explanation: B) EAR = interest paid ÷ loan amount received = $277 ÷ $5,000 = 5.54%.
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