Calculate the EAR of 8% compounded monthly.

Name: Calculate the EAR of 8% compounded monthly.
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Question

Quizplus · Accepted Answer

The Effective Annual Rate (EAR) can be calculated using the formula: $EAR = (1 + \frac{r}{n})^n - 1$, where $r$ is the annual nominal interest rate (expressed as a decimal), and $n$ is the number of compounding periods per year. For an 8% interest rate compounded monthly, $r = 0.08$ and $n = 12$. Plugging these values into the formula gives $EAR = (1 + \frac{0.08}{12})^{12} - 1 = 0.0830$ or 8.30%.

Calculate the EAR of 8% Compounded Monthly