Question

Find the EAR in each of the following cases. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. Use 365 days in a year.)

Stated Rate (APR) Number of Times Compounded Effective Rate (EAR)
9.25 % Quarterly %
16.75 Monthly %
15.25 Daily %
11.25 Semiannually %

Answer 1

EAR = (1 + periodic interest rate)^N - 1

9.25 % Quarterly %

EAR = $(1+\frac{0.0925}{4})^{4} - 1$ = 0.09575 or 9.58%

16.75 Monthly %

EAR = $(1+\frac{0.1675}{12})^{12} - 1$  = 0.1809766 or 18.10%

15.25 Daily %

EAR = $(1+\frac{0.1525}{365})^{365} - 1$  = 0.1647053 or 16.47%

11.25 Semiannually %

EAR = $(1+\frac{0.1125}{2})^{2} - 1$  = 0.115664 or 11.57%