Your bank account pays quarterly interest with an APR of 7%.What is the EAR?
A)7.50%
B)7.2%
C)7.0%
D)7.8%
E)8.0%

Question

Quizplus · Accepted Answer

The formula to convert APR to EAR is:

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

Where m is the number of compounding periods per year. In this case, the interest is paid quarterly, so there are 4 compounding periods per year.

Plugging in the values:

EAR = (1 + (0.07 / 4))^4 - 1

EAR = 0.0721838 or 7.21838%

Therefore, the closest option is B) 7.2%.

Your Bank Account Pays Quarterly Interest with an APR of 7%.What