What is the effective annual rate for a simple rate of 10%, compounded semiannually? Compounded quarterly?...

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What is the effective annual rate for a simple rate of 10%, compounded semiannually? Compounded quarterly? Compounded daily?

Answer 1

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Answer #1

Annual Percentage Rate (APR) = 10% pa

Semi- Annual Compounding

EAR = (1+ 10%/2)^2 -1 = 10.25%

Quarterly Compounding

EAR = (1+ 10%/4)^ 4 -1 = 10.38%

Daily Compounding

EAR = (1+ 10%/365)^ 365 = 10.515 = 10.52%

Answer 2

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