Assume the inflation rate is compounded annually

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Assume the inflation rate is 2.31% APR, compounded annually. Would you rather earn a nominal return of 5.78% APR, compounded semiannually, or a real return of 2.95% APR, compounded quarterly? To put these on the same basis, you must convert them both to nominal EARs.

A. The EAR for the 5.78% APR compounded semiannually is? (Round to 6 decimal places)

B. The nominal EAR for a real 2.95% APR compounded quarterly is? (Round to 6 decimal places)

C. Which would you rather earn?

Reference no: EM131047479

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