What is the EAR if the APR is 5 and compounding is quarterly?
A) Slightly above 5.09
B) Slightly below 5.09
C) Under 5.00
D) Over 5.25
Question 2
Assume that you would like to purchase 100 shares of preferred stock that pays an annual dividend of 6 per share. However, you have limited resources now, so you cannot afford the purchase price.
In fact, the best that you can do now is to invest your money in a bank account earning a simple interest rate of 6, but where interest is compounded daily (assume 365 days). Because the preferred stock is riskier, it has a required annual rate of return of 12 (assume that this rate will remain constant over the next 5 years). For you to be able to purchase this stock at the end of 5 years, how much must you deposit in your bank account today, at t = 0?
A) 2,985.00
B) 4,291.23
C) 3,138.52
D) 3,704.18
E) 4,831.25
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