You are deciding among several different bank accounts. Which of the following will generate the highest effective annual rate (EAR)?
A)A 10 percent rate with monthly compounding
B)A 10 percent rate with annual compounding
C)A 10.5 percent rate with annual compounding
D)A 10 percent rate with quarterly compounding

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) is highest for the account with the highest nominal rate when compounding is annual. A 10.5% rate with annual compounding will have a higher EAR than a 10% rate with any compounding frequency.

You Are Deciding Among Several Different Bank Accounts