If the APR is 12% and interest is compounded monthly, then the EAR is:
A)12.00%
B)1.00%
C)12.68%%
D)none of the above

Question

Quizplus · Accepted Answer

The EAR (Effective Annual Rate) takes into account the effects of compounding on the APR. To calculate EAR, we use the formula EAR = (1 + APR/n)^n - 1, where n is the number of compounding periods in a year. In this case, the APR is 12% and the interest is compounded monthly, so n = 12. Plugging these values into the formula, we get EAR = (1 + 0.12/12)^12 - 1 = 0.1268 or 12.68%. Therefore, option C is the best choice.

If the APR Is 12% and Interest Is Compounded Monthly