Solve Problem 4.19 by applying the EFFECT function to determine the rates. Problem 4.19 Jennifer and Rex

Question:

Solve Problem 4.19 by applying the EFFECT function to determine the rates.

Problem 4.19

Jennifer and Rex both receive a dividend from their 401(k) retirement plan every 6 months. The earning rates for this year have been 5% per year, compounded quarterly for Jennifer, and 4.85% per year, compounded monthly for Rex. Rex felt good about this because he knew the monthly compounding on his plan would make his APY higher than Jennifer’s APY.
(a) Is Rex correct? Explain your answer.
(b) What is the effective rate for each plan on the basis of the payment period?

Compounding
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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