EAR & APR Exercises 1. If the interest is paid at the rate of 8% compounded quarterly, what is the: a. Annual Percentage Rate? b. Effective Annual Rate? 2. Suppose a bank offers a rate to depositors of 8% per year. The Nominal or Annualized (APR) is therefore 8%. If the bank compounds interest once per year then the effective rate (EAR) is identical to the nominal rate, namely 8%. If the bank compounds more than once per year, then effectively, depositors will end up with more than an 8% return at the end of the year. Calculate the EAR if: a. Compounding is semi-annual, 4% every 6 months b. Compounding is quarterly, 2% every 3 months c. Compounding is monthly, 0.667% every month d. Compounding is daily, 0.022% everyday 1. 2. 3. Your friendly neighborhood loan shark is willing to lend you $10,000 for six months. At the end of the six months, she requires you to repay $10,000 plus 50% a. What is the length of the compounding period? b. What is the rate of interest per compounding period? c. What is the interest payment to be made to the loan shark? d. What is the APR associated with your loan shark's lending practices? e. What is the EAR associated with your loan shark's lending activities?