EAR and APR
So I noticed that In some questions that require me to calculate the monthly payment on a loan the ( 1 + APR/M) ^M formula is not used. The Apr is just divided by 12 if it is a monthly payment the question is asking and that figure is plugged into the applicable formula as “r” . Formula is C = Principle / 1/R ( 1 + R) ^ N. Yet my Finance text book depicted an example where there was a 7. 252 % APR Mortgage with semi annual compounding with monthly payments.
To get the r they divided APR by two to arrive at the implied effective rate per compounding period. Then did a ( 1 + 0.03626) ^1/6 -1 to get at 0.5954 % per month. What is the right way. May someone explain. Are mortgages always have semi annual compounding???
When do you convert APR in EAR in principle??? Is it done for calculating monthly payments?
Thanks
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