You are considering three alternative investments:
A three-year bank CD paying 7.52 percent compounded quarterly.Calculate effective annual interest rate (EAR)? (Roundanswer to 2 decimal places, e.g. 15.25%.)
Effective Annual Rate: %
A three-year bank CD paying 7.32 percent compounded monthly.Calculate effective annual interest rate (EAR)? (Roundanswer to 2 decimal places, e.g. 15.25%.)
Effective Annual Rate: %
A three-year bank CD paying 7.82 percent compounded annually.Calculate effective annual interest rate (EAR)? (Roundanswer to 2 decimal places, e.g. 15.25%.)
Effective Annual Rate: %
Which of the above investments has the highest effective annualinterest rate (EAR)?
a. 7.52%
b. 7.82%
c. 7.32%
You are considering three alternative investments:
A three-year bank CD paying 7.52 percent compounded quarterly.Calculate effective annual interest rate (EAR)? (Roundanswer to 2 decimal places, e.g. 15.25%.)
Effective Annual Rate: %
A three-year bank CD paying 7.32 percent compounded monthly.Calculate effective annual interest rate (EAR)? (Roundanswer to 2 decimal places, e.g. 15.25%.)
Effective Annual Rate: %
A three-year bank CD paying 7.82 percent compounded annually.Calculate effective annual interest rate (EAR)? (Roundanswer to 2 decimal places, e.g. 15.25%.)
Effective Annual Rate: %
Which of the above investments has the highest effective annualinterest rate (EAR)?
a. 7.52%
b. 7.82%
c. 7.32%
Related questions
| A bank offers your firm a revolving credit arrangement for up to $72 million at an interest rate of 1.80 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a non-interest-bearing account. Assume you have a short-term investment account at the bank that pays 1.15 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. |
| a. | What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Effective annual interest rate | % |
| b. | What is your effective annual interest rate on the lending arrangement if you borrow $38 million immediately and repay it in one year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Effective annual interest rate | % |
| c. | What is your effective annual interest rate if you borrow $72 million immediately and repay it in one year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
| Effective annual interest rate | % |
| A bank offers your firm a revolving credit arrangement for up to $63 million at an interest rate of 1.46 percent per quarter. The bank also requires you to maintain a compensating balance of 6 percent against the unused portion of the credit line, to be deposited in a noninterest-bearing account. Assume you have a short-term investment account at the bank that pays .87 percent per quarter, and assume that the bank uses compound interest on its revolving credit loans. |
| Required: | |
| (a) | What is your effective annual interest rate (an opportunity cost) on the revolving credit arrangement if your firm does not use it during the year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Effective annual rate | % |
| (b) | What is your effective annual interest rate on the lending arrangement if you borrow $37 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Effective annual rate | % |
| (c) | What is your effective annual interest rate if you borrow $63 million immediately and repay it in one year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) |
| Effective annual rate | % |
