Question

EAR=(1+APR/m)^m-1
where m=compounding periods

a.EAR=(1+0.0772/4)^4-1

=7.95%(Approx).

b.EAR=(1+0.0752/12)^12-1

=7.78%(Approx).

c.EAR=(1+0.0802/1)^1-1

=8.02%

Hence the three year bank CD paying 8.02% compounded annually has the highest effective yield.

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