Question

In: Finance

A bank offers 6.00% on savings accounts. What is the effective annual rate if interest is...

A bank offers 6.00% on savings accounts. What is the effective annual rate if interest is compounded daily?

A bank offers 5.00% on savings accounts. What is the effective annual rate if interest is compounded continuously?

Solutions

Expert Solution

EAR = [1 + (APR / m)]^m − 1

EAR = [1 + (0.06 / 365)]^365 − 1 = 0.0618 or 6.18%

EAR = e^q − 1 = e^0.05 − 1 = 0.0513 or 5.13%


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