Question

Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest every week (52 times a year). What is the effective annual rate (EAR)?

Select one:

a. Less than 12%

b. Exactly 12%

c. 12.01% - 12.35%

d. 12.36% - 12.70%

e. More than 12.70%

Answer 1

EAR=(1+APR/m)^m-1
where m=compounding periods

=(1+0.12/52)^52-1

=12.73%(Approx).

Hence the correct option is E.