An investment at 12% APR compounded monthly is equal to an effective annual rate of:
A)12.68%
B)12.36%
C)12.00%
D)11.87%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) can be calculated using the formula: EAR = (1 + i/n)^(n*t) - 1, where i is the nominal rate (12%), n is the number of compounding periods per year (12), and t is the number of years (1). Plugging in the values, EAR = (1 + 0.12/12)^(12*1) - 1 = 0.1268 or 12.68%.

An Investment at 12% APR Compounded Monthly Is Equal to an Effective