If you borrow money at .25% per month, what is the APR for that loan?

If you borrow money at .25% per month, what is the APR for that loan?

• A. 0.25% per month
• B. 1% per month
• C. 2% per month
• D. 3% per month

Answer: (D)

APR is the yearly rate used to express the cost of borrowing. If the loan charges 0.25% each month, you convert that to an annual figure by multiplying by 12: 0.25% × 12 = 3% per year. If you account for monthly compounding, the exact effective annual rate is (1 + 0.0025)^12 − 1 ≈ 0.0304, about 3.04% per year. So the APR for this loan is about 3% per year (nominal), or roughly 3.04% per year with monthly compounding.

APR is the yearly rate used to express the cost of borrowing. If the loan charges 0.25% each month, you convert that to an annual figure by multiplying by 12: 0.25% × 12 = 3% per year. If you account for monthly compounding, the exact effective annual rate is (1 + 0.0025)^12 − 1 ≈ 0.0304, about 3.04% per year. So the APR for this loan is about 3% per year (nominal), or roughly 3.04% per year with monthly compounding.