Question

Assume a bank offers an effective annual rate of 7.12%. If compounding is quarterly what is the APR?

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Please show all steps for better understanding! Thanks!

Answer 1

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

0.0712=[(1+APR/4)^4]-1

(1+0.0712)=[(1+APR/4)^4]

APR=[(1+0.0712)^(1/4)-1]*4

=6.9374%(Approx).