Question

You have found three investment choices for a​ one-year deposit:

11.3 %11.3%

APR compounded​ monthly,

11.3 %11.3%

APR compounded​ annually, and

10.5 %10.5%

APR compounded daily. Compute the EAR for each investment choice.​ (Assume that there are 365 days in the​ year.) ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

The EAR for the first investment choice is

nothing​%.

​(Round to three decimal​ places.)The EAR for the second investment choice is

nothing​%.

​ (Round to three decimal​ places.)The EAR for the third investment choice is

nothing​%.

​(Round to three decimal​ places.)

Answer 1

1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+11.3/12*100)^12-1)*100

Effective Annual Rate% = 11.9

2

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+11.3/1*100)^1-1)*100

Effective Annual Rate% = 11.3

3

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+10.5/365*100)^365-1)*100

Effective Annual Rate% = 11.07