What investment accumulates more interest--15% compounded semiannually, or 14% c
ID: 2384197 • Letter: W
Question
What investment accumulates more interest--15% compounded semiannually, or 14% compounded daily?
The 15% option earns one percentage point more than the 14% option over a year
The 15% option accumulates more over a year--EAR of 15.5% vs. the 14% option, with an EAR of 15.0%
They accumulate the same amount over a year
The 14% option earns an EAR of 15% and is better than the 15% option with an EAR of 15.9%
a.The 15% option earns one percentage point more than the 14% option over a year
b.The 15% option accumulates more over a year--EAR of 15.5% vs. the 14% option, with an EAR of 15.0%
c.They accumulate the same amount over a year
d.The 14% option earns an EAR of 15% and is better than the 15% option with an EAR of 15.9%
Explanation / Answer
Formula to Calculate Effective Annual Rate = i = (1 + r / m) m - 1
EAR for 15%: (1 + 0.15 / 2)2 - 1 = 15.5625%
EAR for 14%: (1 + 0.14 / 365)365 - 1 = 15.0243%
So, the Correct option is: The 15% option accumulates more over a year--EAR of 15.5% vs. the 14% option, with an EAR of 15.0%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.