Which of the Following Investments Has the Highest Effective Annual

question 21

Multiple Choice

Which of the following investments has the highest effective annual return (EAR) ? (Assume that all CDs are of equal risk.)

• A) a bank CD that pays 7.00 percent interest compounded daily
• B) a bank CD that pays 7.10 percent compounded monthly
• C) a bank CD that pays 7.30 percent annually
• D) a bank CD that pays 7.25 percent compounded semiannually

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Definitions:

Bank Reconciliation

The process of matching and comparing figures from banking statements with those in a company’s financial records to ensure accuracy.

Outstanding Checks

Outstanding checks refer to checks that have been written and recorded in the issuing entity's financial records but have not yet been cashed or cleared by the bank.

Notes Receivable

Notes receivable are written promises for amounts to be received by a business, typically indicating interest terms, due dates, and other conditions under which the funds are to be repaid.

NSF Check

Stands for Non-Sufficient Funds Check, which is a check that cannot be processed because the writer’s account does not have enough funds.