Answer
The account paying 4.5% interest compounded semiannually is a better investment.
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 the 4.5% interest is compounded semiannually.
$Y = (1+\frac{r}{n})^{n}-1$
$Y = (1+\frac{0.045}{2})^{2}-1$
$Y = 0.0455$
The effective annual yield is 4.55%
We can find the effective annual yield when the 4.4% interest is compounded daily.
$Y = (1+\frac{r}{n})^{n}-1$
$Y = (1+\frac{0.044}{360})^{360}-1$
$Y = 0.0450$
The effective annual yield is 4.50%
The account paying 4.5% interest compounded semiannually is a better investment.
