Question

Find the EAR in each of the following cases:

a.	8% compounded quarterly

b.	5% compounded monthly

c.	9% compounded daily

d.	15% with continuous compounding

Answer 1

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

=[(1+0.08/4)^4]-1

=8.243%(Approx)

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

=[(1+0.05/12)^12]-1

=5.116%(Approx)

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

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

=9.416%(Approx)

d.EAR=[(e)^APR]-1

where e=2.71828

=[(2.71828)^0.15]-1

=16.183%(Approx)