If the APR is 8% and compounding is weekly, what is (a) the periodic rate and...

If the APR is 8% and compounding is weekly, what is (a) the periodic rate and (b) the EAR?

Can you explain step by step, how to understand the question?

Solutions

Expert Solution

a.Periodic rate= Annual interest rate/ Number of times a year interest compounds

= 8%/ 52

= 0.1538% 0.15% per week.

b. Effective annual rate is calculated using the below formula:

EAR= (1+r/n)^n-1

Where r is the interest rate and n is the number of compounding periods in one year.

EAR= (1+0.08/52)^52-1

= 1.0832 -1

= 0.0832*100

= 8.3220% 8.32%.

In case of any query, kindly comment on the solution

jeff jeffy answered 1 day ago

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