Homework Answers
(5a) APR = 3%, Compounding Frequency : Monthly or 12 times per annum
Periodic Interest Rate = 3 / 12 = 0.25 %
Therefore, Effective Annual Rate (EAR) = [1+(0.0025)]^(12) - 1 = 0.03042 or 3.042 %
(5b) APR = 18 %, Compounding Frequency: Quarterly or 4 times per annum
Periodic Interest Rate = 18 / 4 = 4.5 %
EAR = [1+(0.045)]^(4) - 1 = 0.19252 or 19.252 %
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