Question

Which would Seth rather have at the end of one year: An account paying an annual...

  • Which would Seth rather have at the end of one year:
    • An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded monthly?
    • An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded quarterly?
    • An account paying an annual effective rate of 10% or an account with a 10% APR compounded annually?
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Answer #1

1. An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded monthly?

EAR = (1 + 0.096/12)12 - 1

EAR = 10.03%

So 9.60% APR compounded monthly is better.

2. An account paying an annual effective rate of 10% or an account with a 9.60% APR compounded quarterly?

EAR = (1 + 0.096/4)4- 1

EAR = 9.95%

So,

EAR of 10% is better.

3.

Here, both are same and give same EAR.

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