Which of the following bank accounts has the lowest effective annual return?

Question

Quizplus · Accepted Answer

By inspection, we can see that c must have a lower EFF% than either a or b because they all pay the same nominal rate but c is compounded least frequently.Similarly, d and e pay the same rate, but e is compounded less frequently, hence e must have the lower EFF%.So, the correct answer must be either c or e.It is not obvious which of these two has the lower EFF%, so we must do a quick calculation to determine the correct response.As the following calculations show, e is the correct answer.
a.8.328% = (1 + 0.08/365)365-1
b.8.300% = (1 + 0.08/12)12-1
c.8.000% = (1 + 0.08/1)1-1
d.7.250% = (1 + 0.07/365)365-1
e.7.229% = (1 + 0.07/12)12-1

Which of the Following Bank Accounts Has the Lowest Effective