Calculate effective annual interest rate (EAR) for the following investments. A

Question

Calculate effective annual interest rate (EAR) for the following investments.

A bank CD that pays 8.22 percent compounded quarterly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate -?

A bank CD that pays 8.22 percent compounded monthly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate -?

A bank CD that pays 8.42 percent compounded annually. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate -?

A bank CD that pays 8.22 percent compounded semi-annually. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate -?

Explanation / Answer

a)

effective annual rate = (1+0.0822/4)^4 -1 = 8.48%

b)

effective annual rate = (1+0.0822/12)^12 -1 = 8.54%

c)

effective annual rate = (1+0.0822) -1 = 8.22%

d)

effective annual rate = (1+0.0822/2)^2 -1 = 8.39%

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