1. What is the APR Calculation?

The APR (Annual Percentage Rate) calculation converts a monthly interest rate to an annual rate using compound interest principles. It provides a standardized way to compare different loan or investment products.

2. How Does the Calculator Work?

The calculator uses the APR formula:

Where:

• \( r_{monthly} \) — Monthly interest rate (decimal form)
• 12 — Number of months in a year

Explanation: The formula accounts for compound interest over 12 months, showing the effective annual rate.

3. Importance of APR Calculation

Details: APR provides a standardized measure to compare different financial products, helping consumers understand the true cost of borrowing or the real return on investments.

4. Using the Calculator

Tips: Enter the monthly interest rate in decimal form (e.g., 0.01 for 1%). The rate must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and APY?
A: APR is the annual rate without compounding, while APY includes compounding effects. This calculator shows the compounded annual rate.

Q2: How do I convert percentage to decimal?
A: Divide the percentage by 100 (e.g., 5% = 0.05).

Q3: Why use 12 as the exponent?
A: Because there are 12 months in a year, and we're compounding monthly.

Q4: Can this be used for daily compounding?
A: No, this specific formula is for monthly compounding. Daily compounding would use 365 as the exponent.

Q5: What does a negative APR mean?
A: Negative APR typically indicates a loss or negative return, though this calculator only accepts non-negative inputs.