Question

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

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 quarterly?

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))

Answer 1

1)

effective annual rate = (1 + APR/n)^n - 1

effective annual rate = (1 + 0.09/2)^2 - 1

effective annual rate = (1 + 0.045)^2 - 1

effective annual rate = 1.092025 - 1

effective annual rate = 092025 or 9.2025%

2)

effective annual rate = (1 + APR/n)^n - 1

effective annual rate = (1 + 0.09/4)^4 - 1

effective annual rate = (1 + 0.0225)^4 - 1

effective annual rate = 1.093083 - 1

effective annual rate = 0.093083 or 9.3083%