Which of the following accounts has the highest EAR?

Question

Quizplus · Accepted Answer

To compare the different accounts, we need to calculate their EARs (Effective Annual Rates), which take into account the compounding effects of each option.

For option A, the annual interest rate would be 2 x 6.1% = 12.2%, and the EAR would be slightly lower than that since interest is only compounded twice per year.

For option B, the annual interest rate would be 4 x 3% = 12%, and the EAR would be slightly higher than option A since interest is compounded more frequently.

For option C, the monthly interest rate would be 1%, and the annual interest rate would be 12 x 1% = 12%. This gives us the highest EAR of the options so far.

For option D, the annual interest rate is already given as 12.6%, so the EAR would be 12.6%.

Therefore, the best choice would be option C, with an EAR of 12%, which is higher than the EAR of option A and slightly higher than option B. Option D has a higher interest rate, but not a higher EAR than option C.

Which of the Following Accounts Has the Highest EAR