Let us take APR = 8 %. Now calculate the EAR for continuous compounding.
Annual Percentage Rate, APR = 8% = 0.08
Formula: Effective Annual Rate, EAR = [1+(APR/m)]^{m} - 1
where, m = number of months
∴ EAR = [1+(0.08/m)]^{m} - 1
=> EAR = [1+(0.08/12)]^{12} - 1 [∵1 year = 12 months]
=> EAR = 1.083 - 1 = 0.083
Therefore, EAR = 8.3%
Let us take APR = 6 %. Now calculate the EAR for continuous compounding.
Time Value of Money: Comparing Interest Rates Different compounding periods, are used for different types of investments. In order to properly compare Investments or loans with different compounding periods, we need to put them on a common basis. In order to do this, you need to understand the difference between the nominal interest rate (INOM) and the effective annual rate (EAR). The Select interest rate is quoted by borrowers and lenders, and it is also called the annual percentage rate...
what is the EAR for a 11.8% APR with continuous compounding?
Ch 05: Blueprint Problems - Time Value of Money Am Keep the Highest 16 6. Time Value of Money Comparing Interest Rates Different compounding periods are ved for ferentes of investments. In order t o come investments or swi tcompounding periods, we need to put them on a common basis. In order to do this, you need to understand the difference between the nominal interest rate (NO) and the effective anal rate (EAR). The interest rate is quoted by borrowers...
what is the EAR for a 11.4% APR with continuous compounding? express your answer as a percentage, with 3 decimals, such as 4.123 percent
Calculate the EAR given the stated APR and compounding period: Stated Rate (APR, pct) Compounding Period EAR 6 quarterly ? A. 6.136 % B. 6.090 % C. 5.870 %
show all working 1. Suppose you have about $65,000 now. a. If you open a money market savings account that pays 1.5%, how much will you have in ten years? Assume annual compounding. b. You estimate that you'll need $200,000 to buy a house in ten years. How much should you earn to make 2 Assume annual compounding c. If you keep your money in the money market saving account, how long will it take for $65.000 t aroto $200,000?...
3. (8 points) A credit card offer you got in the mail advertises an APR of 18% credit card offers 18.5% APR with semiannual compounding a. (6 points) What is the actual interest rate you would be paying annars (1.e. what is the EAR?) vertises an APR of 18% with daily compounding. A second ou would be paying annually on each of the credit cards? b. (2 point) If you took one of the offers, which should you take?
Practice Problems 1. You invest $8,000 in a savings account, the interest rate is 12% per year and the length of time is 15 years. Compounding is monthly. What is the value of the savings account at the end of ten years? 2. What would be the answer if compounding is every six months? 3. How many periods does it take for money to double if the interest rate is 12% per period? 4. If the interest rate is 12%...