Which of the following accounts has the highest EAR?
A)one that pays 6.1% every six months
B)one that pays 1.0% per month
C)one that pays 12.6% per year
D)one that pays 3% every three months
E)one that pays 0.2% per week

Question

Quizplus · Accepted Answer

To compare these accounts, we need to calculate the effective annual rate (EAR) for each.

Option A: The account pays 6.1% every six months, so the annual interest rate is 2 x 6.1% = 12.2%. 
Option B: The account pays 1.0% per month, so the annual interest rate is (1+0.01)^12 - 1 = 12.68% 
Option C: The account pays 12.6% annually, so the EAR is simply 12.6%. 
Option D: The account pays 3% every three months, so the annual interest rate is 4 x 3% = 12%. 
Option E: The account pays 0.2% per week, so the annual interest rate is 52 x 0.2% = 10.4%.

Therefore, the option with the highest EAR is B, which has an annual interest rate of 12.68%.

Which of the Following Accounts Has the Highest EAR