Question

In: Finance

A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is...

A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded daily?

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded continuously?

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Assume a bank offers an effective annual rate of 6.70%. If compounding is quarterly what is the APR?

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Assume a bank offers an effective annual rate of 7.39%. If compounding is monthly what is the APR?

Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))

Solutions

Expert Solution

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

=[(1+0.09/365)^365]-1

=9.4162%(Approx)

b.EAR=(e)^APR-1
where e=2.71828

=[(2.71828)^0.09]-1

=9.4174%(Approx)

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

0.067=[(1+APR/4)^4]-1

(1+0.067)=[(1+APR/4)^4]

APR=[(1+0.067)^(1/4)-1]*4

=6.538%(Approx)

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

0.0739=[(1+APR/12)^12]-1

(1+0.0739)=[(1+APR/12)^12]

APR=[(1+0.0739)^(1/12)-1]*12

=7.1509%(Approx)


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