Question

"You want to invest $13,000 and are looking for safe investment options. Your bank is offering a certificate of deposit that pays a nominal rate of 8.00% that is compounded daily. Your effective rate of return on this investment is"

Answer 1

Answer:

The effective rate of return on this investment is 8.33%.

Explanation:

The effective rate of return is an interest rate applied (either earned or paid) on an amount invested annually and when the amount is compounded more than one.

The formula to compute the effective rate of return is:

Effective rate of return $=[(1+(\frac{Nominal\ Rate}{n} ))^{n})-1]$

The nominal rate is 8% compounded annually.

Compute the effective rate of return as follows:

Effective rate of return $=[(1+(\frac{Nominal\ Rate}{n} ))^{n})-1]$

                                      $=[(1+(\frac{0.08}{365} ))^{365})-1]\\=[(1.00022)^{365}-1]\\=[1.0833-1]\\=0.0833\\\approx8.33\%$

Thus, the effective rate of return on this investment is 8.33%.

Answer 2

Answer:

8.327833%

Explanation:

Given:

Invested Amount = $13,000

Nominal Rate = 8.00%

Effective rate of return = ?

Number of annuity = 1 year = 1 x 365 = 365

$The\ Effective \ Rate \ of \ Return = [1+\frac{Nominal Rate}{n}]^n-1\\=[1+\frac{0.08}{365} ]^{365}-1\\=[\frac{365.08}{365} ]^{365}-1\\=(1.00021918)^{365}-1\\=1.08327833-1\\=0.08327833$

So , the Effective Rate of return = 0.08327833 or 8.327833%