Question

Assume the inflation rate is 2.15 % ​APR, compounded annually. Would you rather earn a nominal return of 4.65 %APR, compounded​ semiannually, or a real return of 2.55 %APR, compounded​ quarterly? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

To put these on the same​ basis, you must convert them both to nominal EARs

The EAR for4.65 % APR, compounded semiannually is ____.

Answer 1

4.65% is already in nominal terms, hence calculation of EAR can be proceded,

EAR semi annually = [1 + r/2)^2 -1

= [1+ (.0465/2)]^2 - 1 = 4.704056%