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16 May, 11:31

You have a savings account in which you leave the funds for one year without adding to or withdrawing from the account. Which would you rather have: a daily compounded rate of 0.055 %, a weekly compounded rate of 0.355 %, a monthly compounded rate of 1.25 %, a quarterly compounded rater of 4.50 %, a semiannually compounded rate of 8.5 %, or an annually compounded rate of 18 %? What is the effective annual rate (EAR) of a daily compounded rate of 0.055 %? 22.23 % (Round to two decimal places.) What is the EAR of a weekly compounded rate of 0.355 %? 20.23 % (Round to two decimal places.) What is the EAR of a monthly compounded rate of 1.25 %?

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  1. 16 May, 14:29
    0
    a daily compounded rate of 0.055 %

    Explanation:

    we multiply by the suberiodic capitalization and compare each other

    Daily compounding

    APR = 0.055 x 365 = 20.075%

    Effective rate:

    (1+0.00055) ^365 - 1 = 0.222251701 = 22.22%

    Weekly compounding:

    APR 0.355 x 52 = 18.46%

    Effective rate

    (1 + 0.355) ^52 - 1 = 0.202344149 = 20.23%

    Montly Compounding

    APR = 1.25 x 12 = 15%

    effective rate

    (1 + 0.0125) ^ 12 - 1 = 0.160754518

    Quarterly compounding

    APR 4.5 x 4 = 18%

    Semiannually compounding

    APR 8.5 x 2 = 17%

    annual APR 18%

    The best option would be the daily compounding of 20.075%
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