Which would Seth rather have at the end of one year: An account paying an annual...
- Which would Seth rather have at the end of one year:
- An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded monthly?
- An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded quarterly?
- An account paying an annual effective rate of 10% or an account with a 10% APR compounded annually?
Homework Answers
1. An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded monthly?
EAR = (1 + 0.096/12)12 - 1
EAR = 10.03%
So 9.60% APR compounded monthly is better.
2. An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded quarterly?
EAR = (1 + 0.096/4)4- 1
EAR = 9.95%
So,
EAR of 10% is better.
3.
Here, both are same and give same EAR.
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