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Ms Akina deposits an amount with Bank of Kyoto that earns interest 8% p
Ms Akina deposits an amount with Bank of Kyoto that earns interest 8% p.a. and compounded monthly. Find the EAR that the bank is paying her
Expert Solution
Computation of Effective Annual Rate (EAR):
Effective Annual Rate (EAR) = (1+i/n)^n -1
Here,
i = Interest Rate = 8%
n = Number of Compounding Periods = 12
Effective Annual Rate (EAR) = (1+8%/12)^12 - 1 = 1.083 - 1 = 0.083 or 8.30%
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