Question

Account A pays a 5.33 percent annual percentage rate, compounded quarterly. Account B pays a 5.22 percent annual percentage rate, compounded monthly. What is the difference between the two effective annual rates? 0.11% 0.09% 0.08% 0.10%

Answer 1

Account A pays a 5.33 percent annual percentage rate, compounded quarterly. Account B pays a 5.22 percent annual percentage rate, compounded monthly. What is the difference between the two effective annual rates?

EAR of a/c A = (1 + 0.0533/4)^4 - 1

EAR of a/c A = 0.05437482899

EAR of a/c B = (1 + 0.0522/12)^12 - 1

EAR of a/c B = 0.05346717231

The difference = 0.05437482899 - 0.05346717231

The difference = 0.00090765668

The difference = 0.090765668%

Option B is correct: 0.09%