Question

2. Find the EAR in each of the following cases. Required:

(a) 19% APR compounded quarterly A.20.40% B.19.45% C.24.48% D.23.46% E.16.32%

(b) 13% APR compounded monthly A.13.36% B.14.84% C.15.18% D.12.42% E.13.80%

(c) 10% APR compounded daily A.11.57% B.10.52% C.10.25% D.11.30% E.9.46%

(d) 16% APR with infinite (or continuous) compounding A.16.66% B.18.65% C.17.35% D.19.09% E.15.62%

Answer 1

Calculating EAR for the following cases:-

(a) 19% APR compounded quarterly

Where,

r = Interest rate = 19%

m = no of times compounding in a year = 4

EAR = 1.2040 - 1

EAR = 20.40%

Option A

b). 13% APR compounded monthly

Where,

r = Interest rate = 13%

m = no of times compounding in a year = 12

EAR = 1.1380 - 1

EAR = 13.80%

Option E

(c) 10% APR compounded daily

Where,

r = Interest rate = 10%

m = no of times compounding in a year = 365

EAR = 1.1052 - 1

EAR = 10.52%

Option B

(d) 16% APR with infinite (or continuous) compounding

Formula of EAR for continous compounding

Where,

r = Interest rate = 16%

EAR = 1.1735 - 1

EAR = 17.35%

Option C

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