This Question 4 pts 15 of 25 10 co Determine the effective a

This Question: 4 pts 15 of 25 (10 co Determine the effective annual yield for each investment. Then select the better investment. Assume 360 days in a year 75% compounded monthly: 7 75% compounded annually The effective annual yield for a 7 5% compounded monthly investment is Ds Round to two decimal places as needed) The effective annual yield for a 7 75% compounded annually investment is Round to two decimal places as needed.) Choose the better investment below % 7.75% compounded annually 75% compounded monthly O Click to select your answerls) 4 2

Solution

EAR=(1+APR/m)^m-1
where m=compounding periods

1.EAY=(1+0.075/12)^12-1

=7.76%(Approx)

2.EAY=(1+0.0775/1)^1-1

=7.75%

Hence 7.5% compounded monthly is better investment having higher EAY.