Question
Periodic interest rates. 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
compounded rater of
of
What is the EAR of a quarterly compounded rate of
What is the EAR of a semiannually compounded rate of
(Round to two decimal places.)
adding to or withdrawing from the account. Which would you rather have: a daily compounded rate of
compounded rater of
of
What is the EAR of a quarterly compounded rate of
What is the EAR of a semiannually compounded rate of
(Round to two decimal places.)
Ask by Best Kirk. in the United States
Jan 24,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The EAR for a semiannually compounded rate of 9% is 9.20%.
Solution
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The Deep Dive
To answer your question on the effective annual rate (EAR) for a semiannually compounded rate of
where
-
-
(because it compounds semiannually) -
Plugging the values into the formula:
Calculating this gives:
To express this as a percentage:
So, the effective annual rate for a semiannually compounded
Now, about those interest rates you’re considering for your savings—you’d want to pick the option with the highest EAR! The annually compounded
