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Highest effective annual rate

Lisa Smith, the treasurer of Bank AAA, has $100 million to invest for one year. She has identified three alternative one-year certificates of deposit (CDs), with different compounding periods and annual rates. CD1: monthly, 7.82%; CD2: quarterly, 8.00%; CD3: semiannually, 8.05%; and CD4: continuous, 7.95%. Which CD has the highest effective annual rate (EAR)?

A. CD1

B. CD2

C. CD3

D. CD4

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