Question

Find the EAR in each of the following cases (Use 365 days a year. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.): Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) 9.3% Quarterly % 18.3 Monthly 14.3 Daily 11.3 Infinite

Answer 1

Answer and Explanation:

The formula to calculate the effective annual rates under the following scenarios is as follows:

As we know that

Effective annual rate = (1 + Annual percentage rate ÷  compounding period)^compounding period - 1

1. For Quartely

EAR = (1 + 0.093 ÷ 4)^4 - 1

= 9.63%

2. For monthly

EAR = (1 + 0.183 ÷ 12)^12 - 1

= 19.92%

3. For daily

EAR  = (1 + 0.143 ÷ 365)^365 - 1

= 15.37%

4. For daily

EAR = (e)^APR - 1

Here

e = 2.71828

EAR = (2.71828)^0.113 - 1

= 11.96%