Answer:
The bank account that will have the highest effective annual return is For an account that pays 8% nominal interest with daily (365-day) compounding.
Explanation:
let r be the nominal interest and n be the period.
the effective rate of return = [(1+r/n)^n - 1]*100
For an account that pays 8% nominal interest with daily (365-day) compounding.
effective rate of return = [(1+0.08/365)^365 - 1]*100
= 8.328%
For An account that pays 8% nominal interest with monthly compounding.
effective rate of return = [(1+0.08/12)^12 - 1]*100
= 8.300%
For An account that pays 8% nominal interest with annual compounding.
effective rate of return = [(1+0.08/1)^1 - 1]*100
= 8.000%
For An account that pays 7% nominal interest with daily (365-day) compounding.
effective rate of return = [(1+0.07/365)^365 - 1]*100
= 7.250%
For An account that pays 7% nominal interest with monthly compounding.
effective rate of return = [(1+0.07/12)^12 - 1]*100
= 7.229%
Therefore, The bank account that will have the highest effective annual return is For an account that pays 8% nominal interest with daily (365-day) compounding.
