An 8% APR with monthly compounding is closest to which of the following?
A)an EAR of 6.7%
B)an EAR of 7.72%
C)an EAR of 8.3%
D)an EAR of 8.5%
E)an EAR of 9.14%

Question

Quizplus · Accepted Answer

The EAR (Effective Annual Rate) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (0.08), n is the number of compounding periods per year (12), and t is the number of years (1). Plugging in the values, EAR = (1 + 0.08/12)^(12*1) - 1 ≈ 0.083, or 8.3%.

An 8% APR with Monthly Compounding Is Closest to Which