Periodic interest rates. You have a savings sccount in which you leave the funds

Question

Periodic interest rates. You have a savings sccount in which you leave the funds for one year without adding to or you rather have a daily compounded rate of0050%, 450%, a semiannually compounded rate or 8%, or an annually compounded rate of 18% withdrawing from the account. Which would a weekly compounded rate of 0.285%, a monthly compounded rate of 1.55%, a What is the effective annual rate (EAR) of a daly compounded rate of 0.050%7 %(Round to two decimal places ) what is the EAR of a weekly compounded rate of 0 285%? (Round to two decimal places) what is the EAR of a monthy compounded rate of 1.55%? (Round to two decimal places.) what is the EAR of a quarterly oompounded rate of 4.50%? Tr (Round to two decimal places) What is the EAR of a semiannually empounded ,ale of 8%? ound to tno decimal places) What is the EAR of an anually compounded rate of 18% (Round to two decimal places. which periodic rate would you rather have your savings acmant? Select the best response. I A. An annual compounded rate of 18%. O B. A daly compounded rate of 0.060% C. A semannual compounded rate of 8% D. A weekly oompounded rate of 0.285% E. A monthly compounded rate of 1 55% F. A quarterfy compounded ratn nr 4 50%.

Explanation / Answer

a) A daily compounding rate of 0.050%

There are 365 days in a year, so we get the effective annual rate(EAR) for this by compounding this rate for 365 days = (1+0.050%)365

->(1+EAR) =  (1+0.050%)365

-> EAR = 20.02%

b) A weekly compounding rate of 0.285%

There are 52 days in a year, so we get the effective annual rate(EAR) for this by compounding this rate for 52 weeks = (1+0.285%)52

->(1+EAR) =  (1+0.285%)52

-> EAR = 15.95%

c) A monthly compounding rate of 1.55%

There are 12 months in a year, so we get the effective annual rate(EAR) for this by compounding this rate for 12 months = (1+1.55%)12

->(1+EAR) =  (1+1.55%)12

-> EAR = 20.27%

d) A quarterly compounding rate of 4.5%

There are 4 quarters in a year, so we get the effective annual rate(EAR) for this by compounding this rate for 4 Quarters = (1+4.5%)4

->(1+EAR) =  (1+4.5%)4

-> EAR = 19.25%

e) A Semiannual compounding rate of 8%

There are 2 semi-annuals in a year, so we get the effective annual rate(EAR) for this by compounding this rate for 2 semi-annuals = (1+8%)2

->(1+EAR) =  (1+8%)2

-> EAR = 16.64%

f) An annual compounding rate of 18%

Since it is annual, the EAR is equal to the annual compounding rate = 18%

EAR = 18%

The highest return is for a monthly compounding rate of 1.55% which is 20.27%

Therefore I choose (E) Monthly Compounding rate of 1.55% as the best rate for my savings.

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