If the effective annual interest rate is known to be 19.4% on a debt that has quarterly payments,what is the annual percentage rate?
A) 19.40%
B) 19.10%
C) 18.13%
D) 18.00%

Question

Quizplus · Accepted Answer

The annual percentage rate (APR) can be calculated from the effective annual rate (EAR) using the formula: EAR = (1 + APR/n)^n - 1, where n is the number of compounding periods per year. In this case, with quarterly payments, n = 4. Rearranging the formula to solve for APR and substituting the given EAR of 19.4% (or 0.194 in decimal form), we find that the APR is lower than the EAR due to the effects of compounding. Through calculation, the APR is found to be approximately 18.13%, which matches option C.

If the Effective Annual Interest Rate Is Known to Be