You want to invest $14,000 and are looking for safe investment options. Your bank is offering...
You want to invest $14,000 and are looking for safe investment options. Your bank is offering you a certificate of deposit that pays a nominal rate of 10% that is compounded daily. What is the effective rate of return that you will earn from this investment?
Homework Answers
Effective annual rate of return is calculated using the below formula:
EAR= (1+r/n)^n-1
Where r is the interest rate and n is the number of compounding periods in one year.
EAR= (1+ 0.10/365)^365 -1
= (1 + 0.0003)^365 -1
= 1.1052 – 1
= 0.1052*100
= 10.52%
Therefore, the effective rate of return is 10.52%
In case of any query, kindly comment on the solution.
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