Asked by Jasmine Montero on Jun 03, 2024
Verified
Annual percentage rates can be converted to effective annual rates by means of the following formula:
A) [1 + (APR/n) ]n - 1
B) (APR) (n)
C) (APR/n)
D) (periodic rate) (n)
Effective Annual Rates
The interest rate on an investment or loan that considers the effects of compounding over a year.
Annual Percentage Rates
Annual Percentage Rates (APR) represent the annual interest rate charged for borrowing or earned through an investment, accounting for fees and other costs.
APR
Annual Percentage Rate, encompassing the annual rate charged for borrowing or earned through an investment, inclusive of any fees or additional costs.
- Understand how to convert Annual Percentage Rates (APR) to Effective Annual Rates (EAR).
Verified Answer
NN
nothando nhlanhloJun 08, 2024
Final Answer :
A
Explanation :
The formula for converting APR to effective annual rate is [1 + (APR/n)]n - 1. This formula takes into consideration the number of compounding periods in a year (n) to give the true effective rate of interest for the year. Therefore, the correct answer is A.
Learning Objectives
- Understand how to convert Annual Percentage Rates (APR) to Effective Annual Rates (EAR).