Chapter 4, Problem 22PROB

Summary Introduction

Savings investment that pays 6% compounded monthly.

An annual percentage rate (APR) is the annual rate which measures the absolute annual cost of funds over the period of a loan or an investment.

$APR=\sqrt[n]{\frac{FV}{PV}}$

Here,

The annual percentage rate is “APR”.

The present value is “PV”.

The future value is “FV”.

The maturity period is “n”.

Effective annual interest is gained or paid on a loan or an investment due to the result of compounding over a specified time period.

$EAR={\left(1+\frac{APR}{m}\right)}^m-1$

Here,

The effective annual rate is “EAR”.

The annual percentage rate is “APR”.

The no of compounding periods is “m”.