Question

You have found three investment choices for a one-year deposit: 11% APR compounded monthly, 12% APR compounded annually, and 9% APR compounded daily. Compute the EAR for each investment choice. (Assume that there are 365 days in the year.) For the case of 11% APR compounded monthly the EAR IS %. (Round to three decimal places.) For the case of 12% APR compounded annually the EARS %. (Round to three decimal places.) For the case of 9% APR compounded daily the EAR is %. (Round to three decimal

Answer 1

EAR can be calculated using formula

EAR = (1 + APR/n)^n - 1, where n is compounding frequency.

So, For APR of 11% compounded monthly

EAR = (1 + 0.11/12)^12 - 1 = 11.57%

For APR of 12% compounded annually,

EAR = (1+ 0.12)^1 - 1 = 12%

For APR of 9% compounded daily

EAR = (1 + 0.09/365)^365 - 1 = 9.42%