# EAR

Hi, It’s the easiest sum in the book…and I use a Texas BAII. What are the keysteps to computing EAR for 12% compounded annually?When I try it I get 1.13 when the answer is 12.55%(0.1255) Where am I goin wrong?

“12% compounded annually”? Are you sure it is ‘annually’? Not sure what book and what page… But, in case you are converting from APR to EAR you may want to take a look at the recent (last) comment in this link: http://www.analystforum.com/phorums/read.php?11,811386,811546

if it is compounded annually you will get 12%, however if it is compounded monthly then answer is 12.68 step1 divide 12/1200(12 for months and 100 for percentage)=.01 step2 add 1 to it = 1+.12=1.01 step 3 (1.01)^12-1=12.68

It most say what is the EAR for a 12% APR return compounded quarterly, which is 12.55% 12% / 4 = 3% 1.03^4 = 12.55%

Thanx…and sorry for the lack of clarity in the question. It’s for a friend who’s currently on page. The question was indeed “EAR for a 12% APR return compounded quarterly” For some strange reason me getting…1.13. Have followed the relevant steps… Sorry again for the imcompleteness of question…

Basically, something you missing in problem is it has quarterly compounding as you say EAR = 12.55%. I will expand what projectplatnyc said. APR = 12%, Since quarterly compounding - Periodic Rate = 12/4 (APR/m) = 3% EAR = (1 + periodic rate)^m - 1 = (1 + .03)^4 - 1 = 12.55%

manavecplan Wrote: ------------------------------------------------------- > What are the keysteps [2nd][ICONV] NOM=12 C/Y= 4 (quarterly compounding) [CPT]{EFF}= 12.551

manavecplan Wrote: ------------------------------------------------------- > Thanx…and sorry for the lack of clarity in the > question. It’s for a friend who’s currently on > page. > > The question was indeed “EAR for a 12% APR return > compounded quarterly” > > For some strange reason me getting…1.13. Have > followed the relevant steps… > > Sorry again for the imcompleteness of question… The default setting on a BA 2+ is 2 decimal places. It looks like that’s how yours is set. Set it to floating decimal (9 places). The keystrokes are 2nd Format (it’s the decimal key) “9” “enter” (note: the enter key is on the top row - it’s NOT the “=” key)