A 12% APR with bi-monthly compounding is equivalent to an EAR of:
A)11.98%
B)12.50%
C)12.00%
D)12.62%
E)12.14%

Question

Quizplus · Accepted Answer

To calculate the EAR with bi-monthly compounding, we first need to find the periodic interest rate. Dividing 12% by 6 (for bi-monthly) gives a periodic rate of 2%. Using the formula EAR = (1 + (periodic rate))^n - 1, where n is the number of periods in a year (12 for monthly, 6 for bi-monthly), we get EAR = (1 + 0.02)^6 - 1 = 12.62%. Therefore, the answer is D.

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