Question

Which one of the following has the highest effective annual rate?

Question 9 options:

1)	6 percent compounded annually

2)	6 percent compounded quarterly

3)	6 percent compounded semiannually

4)	6 percent compounded monthly

5)	6 percent compounded weekly

Answer 1

Ans Compounded Weekly has the highest effective annual rate

	EAR =	( 1 + r )^n - 1
1)		Compounded Annually
	EAR=	( 1 + 6%/1)^1 - 1
	EAR=	6.00%
2)		Compounded Quarterly
	EAR=	( 1 + 6%/4)^4 - 1
	EAR=	6.14%
3)		Compounded Semi-Anually
	EAR=	( 1 + 6%/2)^2 - 1
	EAR=	6.09%
4)		Compounded Monthly
	EAR=	( 1 + 6%/12)^12 - 1
	EAR=	6.17%
5)		Compounded Weekly
	EAR=	( 1 + 6%/52)^52 - 1
	EAR=	6.18%