Would a depositor prefer an APR of 8% with monthly compounding or an APR of 8.5% with semiannual compounding?
A) 8.0% with monthly compounding
B) 8.5% with semiannual compounding
C) The depositor would be indifferent.
D) The time period must be known to select the preferred account.

Question

Quizplus · Accepted Answer

EAR = [1 + (0.08 / 12)]¹² − 1 = 8.30%EAR = [1 + (0.085 / 2)]² − 1 = 8.68%The depositor will prefer the option with the higher EAR (effective annual rate).

Would a Depositor Prefer an APR of 8% with Monthly