A bank has a special deal that if a customer agrees to keep the money with the bank for 2 years, the bank will credit interest on the account at a nominal annual interest rate of 1% compounded quarterly for the first quarter, 2% compounded quarterly for the second quarter, and so on, with the nominal annual rate increasing by 1% each quarter until it is an nominal annual rate of 8% compounded quarterly. Over the two-year period, what is the EAR on this bank account?

A bank has a special deal that if a customer agrees to keep the money with the bank for 2 years, the bank will credit interest on the account at a nominal annual interest rate of 1% compounded quarterly for the first quarter, 2% compounded quarterly for the second quarter, and so on, with the nominal annual rate increasing by 1% each quarter until it is an nominal annual rate of 8% compounded quarterly. Over the two-year period, what is the EAR on this bank account?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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