What is the EAR if the APR is 5% and compounding is quarterly?
A)Slightly above 5.09%
B)Slightly below 5.09%
C)Under 5.00%
D)Over 5.25%

Question

Quizplus · Accepted Answer

To calculate the Effective Annual Rate (EAR) when APR is given and compounding is quarterly, we can use the following formula: 
EAR = (1 + (APR/n))^n - 1 
where n is the number of compounding periods per year. 
In this case, n = 4 (since compounding is quarterly). Therefore, EAR = (1 + (0.05/4))^4 - 1 = 0.050944 or approximately 5.09%. 
The closest option to this is option A, which is slightly above 5.09%. Therefore, the best choice is A.

What Is the EAR If the APR Is 5% and Compounding