RatedrillAPR behind an effective rate
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A lender quotes an effective annual rate of 3% on a loan that compounds monthly. What nominal annual rate (APR) is it charging?
What this problem teaches
The formula: APR = m × ((1 + EAR)^(1/m) - 1). The APR is always below the effective rate when there is compounding within the year, because the effective rate includes interest on interest.
A hint if you get stuck
Reverse the EAR formula: the rate per period is (1 + EAR)^(1/m) - 1, and the APR is m times that.
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