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.