Question

Suppose you want to earn an effective rate of 12% and you are looking at an account that compounds on a monthly basis. What APR must they pay? How would you do this on a BAII Plus Calculator?

Answer 1

EAR = 1*(1 + (APR/12))^12

1.12 = (1 + APR/12)^12

Solving the above equation we get, APR = 11.38%

Now according to the financial calculator it be done through series of steps:

1. 2^nd -> FV

2. 2^nd -> I/Y -> (Downward Arrow) -> 12 (Digits) -> ENTER {To set the monthly basis of calculation}

3. CE|C -> CE|C -> 1 -> N {To set the number of years}

4. 1 (Digits) -> PV

5. 1.12 (Digits) -> FV

6. CPT -> I/Y