Question: Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one-year maturity and a fixed interest rate.

Your grandmother asks for your help in choosing a certificate of deposit (CD) from a bank with a one-year maturity and a fixed interest rate. The first certificate of deposit, CD #1, pays 4.95 percent APR compounded daily, and the second certificate of deposit, CD #2, pays 5.0 percent APR compounded monthly. What is the effective annual rate (the EAR) of each CD, and which CD do you recommend to your grandmother?

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