Question

You have a savings account in which you leave the funds for one year without adding to or withdrawing from the account. Which would you rather​ have: a daily compounded rate of 0.055​%, a weekly compounded rate of 0.355​%, a monthly compounded rate of 1.25​%, a quarterly compounded rater of 4.50​%, a semiannually compounded rate of 8.5​%, or an annually compounded rate of 18​%?What is the effective annual rate​ (EAR) of a daily compounded rate of 0.055​%? 22.23​% ​(Round to two decimal​ places.)What is the EAR of a weekly compounded rate of 0.355​%? 20.23​% ​(Round to two decimal​ places.)What is the EAR of a monthly compounded rate of 1.25​%?

Answer 1

Answer:

a daily compounded rate of 0.055​%

Explanation:

we multiply by the suberiodic capitalization and compare each other

Daily compounding

APR = 0.055 x 365 = 20.075%

Effective rate:

(1+0.00055)^365 - 1 = 0.222251701 = 22.22%

Weekly compounding:

APR 0.355 x 52 = 18.46%

Effective rate

(1+ 0.355)^52 - 1 = 0.202344149 = 20.23%

Montly Compounding

APR = 1.25 x 12 = 15%

effective rate

(1+ 0.0125)^ 12 - 1 = 0.160754518

Quarterly compounding

APR 4.5 x 4 = 18%

Semiannually compounding

APR 8.5 x 2 = 17%

annual APR 18%

The best option would be the daily compounding of 20.075%