Question

What is the effective annual rate? What is the EFF% or EAR for a nominal rate of 20% compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily?

Answer 1

EAR			=	((1+i/n)^n)-1			Where,
(Compounding semi annually)			=	((1+0.20/2)^2)-1			i	20%
			=	21.00%			n	2
EAR			=	((1+i/n)^n)-1			Where,
(Compounding quarterly)			=	((1+0.20/4)^4)-1			i	20%
			=	21.55%			n	4
EAR			=	((1+i/n)^n)-1			Where,
(Compounding quarterly)			=	((1+0.20/12)^12)-1			i	20%
			=	21.94%			n	12
EAR			=	((1+i/n)^n)-1			Where,
(Compounding quarterly)			=	((1+0.20/365)^365)-1			i	20%
			=	22.13%			n	365