Which would you rather have: a daily compounded rate of 0.045%, a weekly compounded rate of 0.305%, a monthly compounded rate of 1.55%, a quarterly compounded rater of 4.25%, a semiannually compounded rate of 8%, or an annually compounded rate of 18%?What is the effective annual (EAR) of a daily compounded rate of 0.050%?

(round to two decimal places)

Calculations are listed below.

Explanation:

To compare each rate, we will calculate the real annual rate for each one.

Annual rate= [(1+i)^n] - 1

A) daily compounded rate of 0.045%

Annual rate= {(1.00045^365)-1}*100= 17.85%

B) A weekly compounded rate of 0.305%

Annual rate= {[(1.0035^52)-1]}*100= 19.92%

C) A monthly compounded rate of 1.55%.

Annual rate= [(1.0155^12)-1]*100= 20.27%

D) A quarterly compounded rater of 4.25%

Annual rate= [(1.0425^4)-1]*100= 18.11%

E) A semiannually compounded rate of 8%

Annual rate= [(1.08^2)-1]*100= 16.64%

F) An annually compounded rate of 18%.

The best rate for investment is a monthly compounded rate of 1.55%.

G) What is the effective annual (EAR) of a daily compounded rate of 0.050%?

Annual rate= [(1.00050^365)-1]*100= 20%

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