What is the effective annual rate for an APR of 16.70 percent compounded monthly?

Multiple Choice

18.94%

16.89%

17.78%

18.04%

17.91%

To find the **Effective Annual Rate (EAR)** given an Annual Percentage Rate (APR) of 16.70% compounded monthly, we can use the formula:

\[
EAR = \left(1 + \frac{APR}{n}\right)^n - 1
\]

Where:
- \( APR = 0.1670 \) (APR in decimal form)
- \( n = 12 \) (since it's compounded monthly)

Now, let's calculate it.

\[
EAR = \left(1 + \frac{0.1670}{12}\right)^{12} - 1
\]

Let me calculate this.The **Effective Annual Rate (EAR)** is approximately **18.04%**.

Thus, the correct answer is **18.04%**.

Do you need any more details or have further questions?

Here are 5 related questions:
1. How does the compounding frequency affect the EAR?
2. What is the EAR for an APR of 12% compounded quarterly?
3. How do you convert an APR to EAR when compounded annually?
4. Can the EAR ever be lower than the APR?
5. What happens to the EAR if interest is compounded daily?

**Tip:** The more frequently interest is compounded, the higher the EAR will be for the same APR.

What is the effective annual rate for an APR of 16.70 percent compounded monthly?

Find the Effective Annual Rate (EAR) for an APR of 16.70% compounded monthly. This finance-related problem involves the use of the EAR formula, essential for understanding interest rates and compounding. Suitable for students in college-level finance or economics courses.

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