Homework Answers
Answer-
Given
Money market security maturity = m = 50
days
Yield or interest rate = i = 3.60 % = 0.036
Effective annual rate ( EAR) = ( 1 + (i /m)
)m - 1
m = number of compounding days
EAR = ( 1 + ( 0.036 / 50) )50 - 1
EAR = ( 1 + 0.00072)50 - 1
EAR = (1.00072)50 - 1
EAR = 1.0366 - 1
EAR = 0.0366
EAR = 3.66 %
Therefore the second option 3.66 % is correct. The security's EAR = 3.66 %
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