An investment at 12 percent APR compounded monthly is equal to an effective annual rate of:
A)12.68 percent.
B)12.36 percent.
C)12.00 percent.
D)11.87 percent.

Question

Quizplus · Accepted Answer

The formula for effective annual rate is (1 + (APR/n))^n - 1, where n is the number of times compounded in a year. In this case, n = 12 (because it is compounded monthly), so the effective annual rate is (1 + (0.12/12))^12 - 1 = 0.1268, or 12.68%. Therefore, the answer is choice letter A.

An Investment at 12 Percent APR Compounded Monthly Is Equal