Question

A) In which case will the APR and Effective rate be exactly the same? 1. Payments...

A) In which case will the APR and Effective rate be exactly the same?

1. Payments are made every year

2. Payments are made semiannually

3. Payments are made every quarter

4. Payments are made every month

5. Payments are made every week

B) You get a new credit card from your bank. The document that comes with the card informs you that the interest rate on that card is 28.7% APR. What is the effective annual rate you'll actually be paying? The credit card company uses monthly compounding of interest.

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Answer #1

A) EAR is calculated by solving the following equation:

.

So as we can make out from the above equations, only time when EAR = APR is when the frequency is annual so option 1 is correct.

B)

So the EAR is 25.48%

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