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You plan to invest $1,000 for one year and you have the opportunity to invest it at a 12 percent APR, compounded monthly. Alternatively, you could invest the funds at an annual rate of 12.3 percent compounded semiannually. What is the EAY of each alternative? (Hint: You need to carry your answer to at least the fourth decimal place.) Which investment should be chosen?

You plan to invest $1,000 for one year and you have the opportunity to invest it at a 12 percent APR, compounded monthly. Alternatively, you could invest the funds at an annual rate of 12.3 percent compounded semiannually. What is the EAY of each alternative? (Hint: You need to carry your answer to at least the fourth decimal place.) Which investment should be chosen?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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5. Effective Annual Yield (EAY) and Effective Annual Rate (EAR) A. You plan to invest $1,000 for one year and you have the opportunity to invest it at a 12 percent APR, compounded monthly. Alternatively, you could invest the funds at an annual rate of 12.3 percent compounded semiannually. What is the EAY of each alternative? (Hint: You need to carry your answer to at least the fourth decimal place.) Which investment should be chosen? B. A car loan offered by Bank One requires quarterly payments and has an APR of 4.8 percent, whereas a the same loan amount may be obtained from Bank Two at an APR of 5 percent with monthly payments. Which loan would you choose and why?
Transcribed Image Text:5. Effective Annual Yield (EAY) and Effective Annual Rate (EAR) A. You plan to invest $1,000 for one year and you have the opportunity to invest it at a 12 percent APR, compounded monthly. Alternatively, you could invest the funds at an annual rate of 12.3 percent compounded semiannually. What is the EAY of each alternative? (Hint: You need to carry your answer to at least the fourth decimal place.) Which investment should be chosen? B. A car loan offered by Bank One requires quarterly payments and has an APR of 4.8 percent, whereas a the same loan amount may be obtained from Bank Two at an APR of 5 percent with monthly payments. Which loan would you choose and why?
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