Time Value of Money

Question

Question

Let us take APR = 8 %. Now calculate the EAR for continuous compounding.

Answer 1

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Answer #1

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%

answered by: Zahidul Hossain

Answer 2

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