Related to Checkpoint 5.7) (Calculating an EAR) Your grandmother asks for your h

Question

Related to Checkpoint 5.7) (Calculating an EAR) Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one-year maturity and a fixed interest rate. The first certificate of deposit CD #1 pays 4 95 percent APR compounded se annually, while the second certificate o deposit CD#2 pays 5 00 percent APR com pounded monthy What is the e e e annual rate the EAR of each CD, and which CD do you recommend to your grandmother? "te ist ce ificate of deposit, CD #1, pays 4 95 pe cent APR co ded se the deposit i-% po annually e EAR f (Round to Mo de mal places) nter your answer in the answer box and then click Check Answer 2 emaning Clear A 234 PM O Type here to search

Explanation / Answer

Let EAR be r

Formula used is :

1 + EAR = (1+rate/n)^n

Where n is the periodicity and it's 2 in this case

1+r =(1+0.0495/2)^2

On solving , r = 4.55%

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