Question

You have found three investment choices for a​ one-year deposit: 9.6 %9.6% APR compounded​ monthly, 9.6 %9.6% APR compounded​ annually, and 9.0 %9.0% APR compounded daily. Compute the EAR for each investment choice.​ (Assume that there are 365 days in the​ year.) ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

Answer 1

10.03%

9.60%

9.42%

Step-by-step explanation:

The APR of 9.6% monthly has its effective annual return computed using the modified formula below:

EAR=(1+APR/12)^12-1

The yearly APR is divided by 12 to restate in monthly terms

EAR=(1+9.6%/12)^12-1=10.03%

The APR of 9.6% per year has its EAR computed thus:

EAR=(1+APR/1)^1-1=(1+9.6%/1)^1-1=9.60%

The APR of 9.6% compounded daily has its EAR computed thus;

EAR=(1+APR/365)^365-1=(1+9.0%/365)^365-1=9.42%