Bank Z is currently advertising interest rates on its checking account. They claim to pay an...
Bank Z is currently advertising interest rates on its checking account. They claim to pay an EAR of 4.50%, with daily compounding (assume 365 days per year).
A) What is the corresponding APR?
B) What is the effective rate per day?
Homework Answers
To Calculate APR From EAR
APR = 365 x ((1.045)1/365 - 1)
APR = 365 x (1.00012057 -1)
APR = 365 x .0001205 = .044008
APR = 4.40 %
B) Effective rate per day
= (1 + 4.5%/365)365 – 1
= (1 + 1.046602) - 1
= .046025
= 4.60 %
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