What is the effective annual rate for an APR of 10.60 percent compounded quarterly?

Mathematics

1 answer:

Musya8 [376]2 years ago

7 0

Answer:

The effective annual rate is 11.03%

Step-by-step explanation:

The effective interest rate is calculated through the formula:

$r = (1 + i/n)^n - 1$

In this formula, r represents the effective interest rate, i represents the stated interest rate or APR, and n represents the number of compounding periods per year.

For a quarterly compounded interest, n=4. The APR i=10.60%=0.106

Given an APR r, the effective annual rate for a quarterly compound is:

$r = (1 + 0.106/4)^4 - 1=1.0265^4-1$

$r=1.11029-1=0.1103$

The effective annual rate is 11.03%

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