A 12% APR with bi-monthly compounding is is equivalent to an EAR of:
A)11.98%.
B)12.50%
C)12.00%.
D)12.62%.

Question

Quizplus · Accepted Answer

To calculate the Effective Annual Rate (EAR) with bi-monthly compounding, use the following formula:

EAR = (1 + [APR / m])^m - 1

Where APR is the Annual Percentage Rate and m is the number of compounding periods per year. In this case, the APR is 12% and the compounding is bi-monthly (i.e. 24 times a year). Thus,

EAR = (1 + [0.12 / 24])^24 - 1
    = 0.1262 or 12.62%

Therefore, the correct answer is D.

A 12% APR with Bi-Monthly Compounding Is Is Equivalent to an EAR