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GarryVolchara [31]
3 years ago
14

Your bank account pays interest with an EAR of 4 %. What is the APR quote for this account based on semiannual​ compounding? Wha

t is the APR with monthly​ compounding?​ (Note: Be careful not to round any intermediate steps less than six decimal​ places.)
Business
1 answer:
LenKa [72]3 years ago
8 0

Answer:

APR would be 3.9607805% compounded semiannually

APR would be 3.9284877% compounded monthly

Explanation:

We calcualte consider these rates should be inancially equivalent to an equivalent rate of 4% annually.

<u>The semiannual compounding will capitalize two times:</u>

(1+APR/2)^2 = 1+EAR\\(\sqrt{1.04} -1) \times 2 = 0.039607805

<u>The monthly will capitalize 12 times per year:</u>

(1+APR/12)^12 = 1+EAR\\(\sqrt[12]{1.04} -1) \times 12 = 0.039284877

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