An 7% APR with quarterly compounding is closest to which of the following?
A)an EAR of 7.19%
B)an EAR of 7.09%
C)an EAR of 7.00%
D)an EAR of 7.12%

Question

Quizplus · Accepted Answer

To find the Effective Annual Rate (EAR) when interest is compounded quarterly, we need to use the following formula:

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

where r is the annual interest rate and n is the number of compounding periods per year.

Plugging in the values, we get:

EAR = (1 + 0.07/4)^4 - 1
    = 0.0719 or 7.19%

Therefore, the closest choice is A) an EAR of 7.19%.

An 7% APR with Quarterly Compounding Is Closest to Which