Homework Answers
Ans We would prefer Third Bank since effective rate of interest in third bank is the lowest of all banks.
| EAR = | ( 1 + r )^n - 1 |
| FIRST BANK | Biannual Compounding |
| EAR= | ( 1 + 4.5%/2)^2 - 1 |
| EAR= | 4.55% |
| SECOND BANK | Compounded Monthly |
| EAR= | ( 1 + 4.3%/12)^12 - 1 |
| EAR= | 4.39% |
| THIRD BANK | Annual Compounding |
| EAR= | ( 1 + 4.25%)^1 - 1 |
| EAR= | 4.25% |
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