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You are considering three alternative investments:

A three-year bank CD paying 7.75 percent compounded quarterly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate%

A three-year bank CD paying 7.55 percent compounded monthly. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate%

A three-year bank CD paying 8.05 percent compounded annually. Calculate effective annual interest rate (EAR)? (Round answer to 2 decimal places, e.g. 15.25%.)

Effective annual rate%

Which of the above investments has the highest effective annual interest rate (EAR)?

The three-year bank CD paying

7.55 percent interest compounded monthly7.75 percent interest compounded quarterly8.05 percent interest compounded annually

has the highest effective yield.

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