Find the effective annual interest rate of 7% compounded daily. Assume 365 days per year. Round your answer to the nearest 0.01%.
A) $r _ { \text {eff } } = 7.25 \%$
B) $r _ { \text {eff } } = 25.55 \%$
C) $r _ { \text {eff } } = 7.30 \%$
D) $r _ { \text {eff } } = 7.35 \%$
E) $r _ { \text {eff } } = 1.92 \%$

Question

Find the effective annual interest rate of 7% compounded daily. Assume 365 days per year. Round your answer to the nearest 0.01%.  
A) $r _ { \text {eff } } = 7.25 \%$
B)   $r _ { \text {eff } } = 25.55 \%$
C)   $r _ { \text {eff } } = 7.30 \%$
D)  $r _ { \text {eff } } = 7.35 \%$
E)   $r _ { \text {eff } } = 1.92 \%$

Quizplus · Accepted Answer

The effective annual interest rate, when interest is compounded daily, is calculated using the formula $r_{\text{eff}} = (1 + \frac{r}{n})^n - 1$, where $r$ is the nominal rate (7% or 0.07) and $n$ is the number of compounding periods per year (365). Plugging in the values, $r_{\text{eff}} = (1 + \frac{0.07}{365})^{365} - 1$, which approximately equals 7.25% when rounded to the nearest 0.01%.

Find the Effective Annual Interest Rate of 7% Compounded Daily reff =7.25%r _ { \text {eff } } = 7.25 \%reff ​=7.25%

Find the Effective Annual Interest Rate of 7% Compounded Daily $r _ { \text {eff } } = 7.25 \%$