Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily....

Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily. What would be the effective annual rate (EAR) that you would earn if you chose to deposit money in Bank B? Provide your answer in percentage format without using the % sign. Round to two decimal places. To be marked correct, the answer provided needs to be +/- 0.01 from the actual answer.

Solutions

Expert Solution

EAR=[(1+APR/m)^m]-1
where m=compounding periods

=[(1+0.0175/365)^365]-1

which is equal to

=1.77(Approx)

jeff jeffy answered 2 years ago

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