Which of the following would have the highest effective annu

Which of the following would have the highest effective annual rate?

2% compounded daily

2% compounded monthly

2% compounded quaterly

2% compounded biannually

2% compounded annually

Solution

A.2% compounded daily.

the higher the number of compoundings per annum, the greater will be the effective annual rate.

so, since the nominal rate is same 2% for all the options.

the following will be desccending order of effective annual rate:

daily

monthly

quarterly

biannuallly

annually.