Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c }
\hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \
\hline \text { Rate } & & & & & & \
( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \
\hline
\end{array}$
-The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily is closest to:

Question

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
$\begin{array} { l c c c c c c } 
\hline \text { Term } & \text { 1 year } & \text { 2 years } & \text { 3 years } & \text { 5 years } & \text { 10 years } & \text { 20 years } \
\hline \text { Rate } & & & & & & \
( \text { EAR\%) } & 5.00 \% & 4.80 \% & 4.60 \% & 4.50 \% & 4.25 \% & 4.15 \% \
\hline
\end{array}$
-The effective annual rate (EAR) for a savings account with a stated APR of 4% compounded daily is closest to:

Quizplus · Accepted Answer

The EAR can be calculated using the formula: $ EAR = (1 + \frac{APR}{n})^n - 1 $, where $ n $ is the number of compounding periods per year. For daily compounding, $ n = 365 $. Thus, $ EAR = (1 + \frac{0.04}{365})^{365} - 1 \approx 4.08\% $.

Use the Table for the Question(s) Below -The Effective Annual Rate (EAR) for a Savings Account with Structure