Question

Which of the following APRs compounded monthly is equivalent to an APR of 13.15% compounded quarterly using 360-day calendar years, 30-day months, and 3-month quarters?

Question 7 options:

	12.029%
	12.364%
	12.698%
	13.032%
	13.366%

Answer 1

Quarterly compounding=((1+r/n)^n)-1

r=interest rate

n=number of periods=4 (4 quarters in a quarter)

Quarterly compounding=((1+(13.15%/4))^4)-1=13.81%

Now check the each option below by compounding monthly

i) Monthly compounding=((1+(12.029%/12))^12)-1=12.71%

ii) Monthly compounding=((1+(12.364%/12))^12)-1=13.09%

iii) Monthly compounding=((1+(12.698%/12))^12)-1=13.46%

iv) Monthly compounding=((1+(13.032%/12))^12)-1=13.82%

Option iv is almost equal to quarterly compounding value