Question

You invested in a 3-month certificate of deposit at your bank. Your investment was $1,634, and at the end of the term you will receive $1,962.

**a.** What is the holding period return (HPR) on
your investment? **(Round your answer to 2 decimal
places.)**

HPR %

**b.** What is the annual percentage rate (APR)?
**(Round your answer to 2 decimal places.)**

APR
%

**c.** What is the effective annual rate (EAR)?
**(Round your answer to 2 decimal places.)**

EAR
%

Answer #1

a. | ||||||||

HPR | = | (P1-P0)/P0 | ||||||

= | (1962-1634)/1634 | |||||||

= |
20.07% |
|||||||

Where, | ||||||||

P0 | = | Investment | = | $ 1,634 | ||||

P1 | = | Future Value | = | $ 1,962 | ||||

b. | APR | = | HPR | * | 12/3 | |||

= | 20.07% | * | 12/3 | |||||

= |
80.29% |
|||||||

c. | EAR | = | ((1+i)^n)-1 | Where, | ||||

= | ((1+0.2007)^4)-1 | i | = | 20.07% | ||||

= |
107.87% |
n | = | 4 | ||||

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