What is the EAR if the APR is 5 and compounding is quarterly? ...

[LCritchfi]

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

[okolip]

Answer to Question 1

Answer: A
Explanation: A) Using the EAR formula, we get 5.0945, or slightly above 5.09.
EAR = (1 + APR/m)m -1 = (1 + .05/4)4 - 1 = 5.0945.

Answer to Question 2

This is great. Thanks