Question

Find the EAR in each of the following cases. (Use 365 days in a year. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Stated Rate	Number of times Compounded	Effective Rate (EAR)
10.2%	Quarterly
18.0%	Monthly
13.5%	Daily
9.5%	Semiannually

Answer 1

a. The EAR is computed as shown below:

= (1 + r / m)^m - 1

= (1 + 0.102 / 4)⁴ - 1

= 10.60% Approximately

b. The EAR is computed as shown below:

= (1 + r / m)^m - 1

= (1 + 0.18 / 12)¹² - 1

= 19.56% Approximately

c. The EAR is computed as shown below:

= (1 + r / m)^m - 1

= (1 + 0.135 / 365)³⁶⁵ - 1

= 14.45% Approximately

d. The EAR is computed as shown below:

= (1 + r / m)^m - 1

= (1 + 0.095 / 2)² - 1

= 9.73% Approximately