Periodic interests rates. You have a savings account in which you leave the fund
ID: 2622464 • Letter: P
Question
Periodic interests rates. You have a savings account in which you leave the funds for one year without adding or withdrawing from the account. Which would you rather have: a daily compounded rate of 0.045%, a weekly compounded rate of 0.325%, a monthly compounded rate of 1.25%, a quarterly compounded rater of 4.00%, a semiannually compounded rate of 9%, or an annually compounded rate of 14%?
What is the effective annual (EAR) of a daily compounded rate of 0.045%?
_____(round to two decimal places)
What is the effective annual (EAR) of a weekly compounded rate of 0.325%?
_____(round to two decimal places)
What is the effective annual (EAR) of a monthly compounded rate of 1.25%?
_____(round to two decimal places)
What is the effective annual (EAR) of a quarterly compounded rater of 4.00%?
_____(round to two decimal places)
What is the effective annual (EAR) of a semiannually compounded rate of 9%?
_____(round to two decimal places)
What is the effective annual (EAR) of a annually compounded rate of 14%?
_____(round to two decimal places)
Explanation / Answer
1.) (1+0.00045)^365 -1 = 17.85%
2) (1+0.00325)^52 -1 = 18.38%
3) (1+0.0125)^12 -1 = 16.08%
4) (1+0.04)^4 -1 = 16.98%
5) (1+0.09)^2 -1 = 18.81%
6) 14%
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