Question

Find the EAR in each of the following cases. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Use 365 days in a year.)
Stated Rate (APR) Number of Times Compounded Effective Rate (EAR)
8.3% Quarterly%
17.3 Monthly
13.3 Daily
10.3 Infinite

Answer 1

Answer:

1. 8.56%

2. 18.74%

3. 14.22%

4. 10.85%

Explanation:

Effective annual rate = (1 + periodic interest rate) ^m - 1

M = number of compounding per year

1. (1 + 0.083 / 4 ) ^ 4 - 1 = 0.085619 = 8.56%

2. ( 1 + 0.173 / 12)^ 12 - 1 = 0.187399 = 18.74%

3. (1 + 0.133 / 365)^ 365 - 1 = 0.1422 = 14.22%

4. For continuous compounding = e^r - 1

e = 2.7182818

e^0.103 - 1 = 0.108491 = 10.85%

I hope my answer helps you