To calculate the Effective Annual Rate (EAR) from a monthly interest rate, we need to use the formula for converting the periodic rate to an annual rate. The formula for EAR is:
Where:
- is the monthly interest rate (expressed as a decimal).
Given that the monthly interest rate is 0.8% (or 0.008 as a decimal), we can plug this value into the formula:
So, the Effective Annual Rate (EAR) for a loan with a monthly interest rate of 0.8% is approximately 1.0123, or 1.23% when expressed as a percentage.