An investment has a 3 rate which compounds quartely therefor

An investment has a 3% rate which compounds quartely, therefore it must have an EAR that higher than/lower than/equal to an investment that has a 1% rate which compoinds monthly.

Solution

Correct answer is Higher then.

ie,An investment has a 3% rate which compounds quartely must have an EAR that higher than an investment that has a 1% rate which compounds monthly

By solving equations,

i=(1+r/m)^m?1

r= rate

m= total period

we will get,EAR as

3.03 in first case

&

1.0046 in second case