Question: II. (1) What is an EAR? What is the difference between APY and APR? (2) If interest rate is 6% per year, calculate the EAR

II. (1) What is an EAR? What is the difference between APY and APR?

(2) If interest rate is 6% per year, calculate the EAR when interest is compounded

(a) annually and (b) monthly.

(3) While depositing money in the bank, the investor would prefer the interest to

be compounded annually or monthly? Why?

(4) While negotiating a loan from the bank, the borrower would prefer the interest to

be compounded annually or monthly? Why? (15 points)

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