Question

Find the EAR in each of the following cases: (Use 365 days a year. Do not round intermediate calculations. Round the final answers to 2 decimal places.)

Stated Rate (APR)				Number of Times Compounded				Effective Rate (EAR)
	11.0	%			Quarterly				%
	20.0				Monthly
	16.0				Daily
	13.0				Infinite

Answer 1

Ans:- EAR= (1+r/m)^m-1, where, r is the annual rate, and m is the number of times compounding.

(a) EAR = (1+11%/4)^4-1 =11.46%

(b) EAR = (1+20%/12)^12-1 =21.94%

(c) EAR = (1+16%/365)^365-1 =17.35%

(d) EAR for infinite or continuous compounding = e^r - 1, where e is the mathematical constant and r is the rate of return

= e^13% - 1 =13.88%.