### Certificate of deposit from a bank

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##### Reference no: EM13880577

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, #1 pays 2.95 percent APR compounded annually, while the second certificate of deposit, CD#2 pays 3.00 percent APR compounded monthly. What is the effective annual rate (the EAR ) of each CD and which CD do you recommend to your grandmother?

1. If the first certificate of deposit, #1 pays 2.95 percent APR compounded annually, the EAR for the deposit is ______% (Round to two decimal places.)

2. Based on the findings above, which CD do you recommend to your grandmother? (Select the best choice below)

a. CD #1 that pays 2.95% compounded annually

b. CD #2 that pays 3.00% compounded monthly

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