What is the EAR of a 6-month account that pays an APR of 4.3%?
What is the EAR of a 6-month account that pays an APR of 4.3%?
Homework Answers
Effective annual rate is calculated using the below formula:
EAR= (1+r/n)^n-1
Where r is the interest rate and n is the number of compounding periods in one year.
EAR= (1+0.0430/2)^2 -1
= 1.0435 -1
= 0.0435*100
= 4.35%.
Therefore, the effective annual rate of a 6 month account is 4.35%.
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