Which of the following bank accounts has the highest effective annual return? an account that pays 8% nominal interest with daily (365-day) compounding. an account that pays 8% nominal interest with monthly compounding. an account that pays 8% nominal interest with annual compounding. an account that pays 7% nominal interest with daily (365-day) compounding. an account that pays 7% nominal interest with monthly compounding.

The bank account that will have the highest effective annual return is For an account that pays 8% nominal interest with daily (365-day) compounding.

Explanation:

let r be the nominal interest  and n be the period.

the effective rate of return = [(1+r/n)^n - 1]*100

For an account that pays 8% nominal interest with daily (365-day) compounding.

effective rate of return = [(1+0.08/365)^365 - 1]*100

                                      = 8.328%

For An account that pays 8% nominal interest with monthly compounding.

effective rate of return = [(1+0.08/12)^12 - 1]*100

                                      = 8.300%

For An account that pays 8% nominal interest with annual compounding.

effective rate of return = [(1+0.08/1)^1 - 1]*100

                                      = 8.000%

For An account that pays 7% nominal interest with daily (365-day) compounding.

effective rate of return = [(1+0.07/365)^365 - 1]*100

                                      = 7.250%

For An account that pays 7% nominal interest with monthly compounding.

effective rate of return = [(1+0.07/12)^12 - 1]*100

                                      = 7.229%

Therefore, The bank account that will have the highest effective annual return is For an account that pays 8% nominal interest with daily (365-day) compounding.

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