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

Question

Quizplus · Accepted Answer

To compare the accounts, we need to convert each to its EAR (effective annual rate). 
A) 3% every three months = (1 + 0.03/4)^4 -1 = 3.038% EAR
B) 6.1% every six months = (1 + 0.061/2)^2 -1 = 6.199% EAR
C) 1.0% per month = (1 + 0.01)^12 -1 = 12.68% EAR
D) 12.6% per year = 12.6% EAR
Therefore, the account with the highest EAR is C, which has an annual rate of 12.68%.

Which of the Following Accounts Has the Highest EAR