Alan writes the equation A=500(1.25)t to figure out how much it will cost him for a one-year loan of $500 with an interest rate of 25% compounded only once. He wants to determine the annual percentage rate (APR) for a loan that would cost the same amount overall, if it is compounded monthly, instead of only once.

Which equation should he use, and what is the APR?

1. A≈500(1.0188)^12t APR≈22.56%
2. A≈500(1.0188)^12t APR≈1.88%
3. A≈500(1.2512)^112t APR≈14.55%
4. A≈500(1.25)^12t APR≈1.88%