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You are quoted an APR (annual percentage rate) of .0888 on a loan. The APR is a stated rate. The loan has monthly compounding.

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a) Computation of Periodic Monthly Rate:

Periodic Monthly Rate = APR / Number of Compounding Periods

= 0.0888/12

Periodic Monthly Rate = 0.0074

b) Computation of Equivalent Effective Semiannual Rate:

Equivalent Effective Semiannual Rate = (1+i)^n - 1

= (1+0.0074)^6 - 1

= 1.0452 - 1

Equivalent Effective Semiannual Rate = 0.0452 or 4.52%

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