Answer
It is better to invest at a rate of 5.5% compounded semiannually.
Work Step by Step
This is the formula we use when we find the effective annual yield $Y$:
$Y = (1+\frac{r}{n})^{n}-1$
$Y$ is the effective annual yield
$r$ is the stated interest rate
$n$ is the number of times per year the interest is compounded
We can find the effective annual yield when money is invested at a rate of 5.5% compounded semiannually.
$Y = (1+\frac{r}{n})^{n}-1$
$Y = (1+\frac{0.055}{2})^{2}-1$
$Y = 0.05576$
The effective annual yield is 5.58%
We can find the effective annual yield when money is invested at a rate of 5.4% compounded daily.
$Y = (1+\frac{r}{n})^{n}-1$
$Y = (1+\frac{0.054}{360})^{360}-1$
$Y = 0.0555$
The effective annual yield is 5.55%
It is better to invest at a rate of 5.5% compounded semiannually.
