EAR = [ 1 + (APR/m)]^m -1 where, m = periods in one year.
<h3 /><h3><u>What Is the Annual Percentage Rate (APR)?</u></h3>
The term "annual percentage rate" (APR) describes the annual interest that is produced by an amount that is charged to borrowers or paid to investors. APR is a percentage that represents the actual annual cost of borrowing money throughout the course of a loan or the revenue from an investment. This does not account for compounding and includes any fees or other charges related to the transaction. Consumers can evaluate lenders, credit cards, and investment goods using the APR as a benchmark figure.
<u>What Makes an Effective APR?</u>
What constitutes a "good" APR will vary depending on the market's competing rates, the central bank's prime interest rate, and the borrower's own credit score. Companies in competitive industries will occasionally offer very low APRs on their credit products, such as 0% on vehicle loans or leasing options, when prime rates are low. Although these low rates could sound alluring, clients should make sure that they are permanent and not just introductory rates that will change to a higher APR after a set amount of time. Furthermore, individuals with really good credit ratings can be the only ones who can get low APRs.
<u>Calculation:</u>
<u>a.</u> [ 1 + (0.099/4)]^4 -1
EAR = 10.27%
<u>b.</u> [ 1 + (0.189/12)]^12 -1
EAR = 20.62%
<u>c.</u> [ 1 + (0.149/365)]^365 -1
EAR = 16.06%
<u>d.</u> [ 1 + (0.119/10,000)]^10,000 -1
EAR = 12.63%
Learn more about the annual percentage rate (APR) with the help of the given link:
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<u>Correct question:</u>
Find the EAR in each of the following cases: (Assume 365 days in a year. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Stated Rate (APR) Number of Times Compounded Effective Rate (EAR)
a. 9.9% Quarterly
b. 8.9% Monthly
c. 14.9% Daily
d. 11.9% Infinite
