SOLUTION:
Step 1:
In this question, we have the following:
Step 2:
Using the sample solution in the second picture, we can see that the
The Formula of the Effective Interest Rate is given by:
[tex]\begin{gathered} \text{E = ( 1+}\frac{r}{n})^{n\text{ }}-1 \\ \text{where r = Rate } \\ In\text{ this case, we have that r = 5.02\% = 0.0502 } \\ n\text{ =2 , showing the semi-annual }compounded\text{ rate} \end{gathered}[/tex]
In this case, the Effective Interest Rate, E = 0.05083001 %
[tex]E\text{ }\approx\text{ 0.05 \% ( to two decimal places)}[/tex]
Step 3:
[tex]\begin{gathered} \text{ E= ( 1+}\frac{r}{n})^{n\text{ }}-1 \\ \text{where E=Effective rate} \\ n\text{ = number of periods per year the interest is calcuated = 4} \\ r=\text{ Interest rate per year = 4}.95\text{ \%} \end{gathered}[/tex]
Then, the detailed solution is as follows:
In this case, the Effective Interest Rate, E = 0. 05042
[tex]E\text{ }\approx0.05\text{ \% (to 2 decimal places)}[/tex]
Step 4:
One more part which investment is the better one?
Despite the two values are:
[tex]E\approx0.05\text{ \% (to 2 decimal places)}[/tex]
But for the semi-annual investment, E= 0.05083001 %
and the quarterly investment, E = 0.05042%
CONCLUSION:
The better investment is that of the semi-annual investment because it is bigger than the quarterly investment.
