Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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(a) Explain the differences between annual percentage rate (APR) and effective annual rate (EAR). 

(b) Phoebe is considering selling her entire stock holding and depositing the money ($500,000 in total) into a bank account. She has obtained the following information about two banks:

Bank X: 12% APR with monthly compounding

Bank Y: 13% APR with semi-annual compounding

(i) Based on the comparison of the yearly rate of return, which bank would Phoebe prefer? Provide supporting calculations. 

(ii) How much money will Phoebe have in Bank X’s account five years from now if the money remains in the account during the period? Provide supporting calculations.

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