Question

8) Would a depositor prefer an APR of 89 semiannual compounding? A) 8.5% with semiannual compounding B) 8.0% with monthly compounding C) The depositor would be indifferent. preter an APR of 8% with monthly compounding or an APR pounding or an APR of 8.5% with D) The time period must be known to select the preferred accou 9) A credit card account

Answer 1

EAR = (1+APR/n)^n - 1

n = number of compounds

EAR of 8% monthly compounding

= (1+ 0.08/12)^12 - 1

= 8.30%

EAR of 8.5% semiannual compounding

= (1+0.085/2)^2 - 1

= 8.68%

choose A) 8.5% with semiannual compounding