Answered: A three-year bank CD paying 7.19…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

You are considering three alternative investments:

A three-year bank CD paying 7.19 percent compounded quarterly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate

___________

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A three-year bank CD paying 6.99 percent compounded monthly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate

__________

Which of the above investments has the highest effective annual interest rate (EAR)?

The three-year bank CD paying has the highest effective yield

a). 6.99% interest compand monthly

b). 7.49% interest compond annually

c). 7.19% interest compond quartley

has the highest yield

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