Question

Which one of the following bank accounts will you choose for a savings account? Bank A: An account that pays 8% nominal interest (APR) with daily (365-day) compounding. Bank B: An account that pays 8% nominal interest (APR) with annual compounding. Bank C: An account that pays 7% nominal interest (APR) with daily (365-day) compounding. Bank D: An account that pays 7% nominal interest (APR) with monthly compounding.

Answer 1

bank a

Step-by-step explanation:

to determine the appropriate bank to choose for a savings account, we have to calculate the effective annual interest rate. the bank with the highest effective annual interest rate would be chosen

Effective annual rate = (1 + APR / m ) ^m - 1

M = number of compounding

Bank A = [ 1 + (0.08/365)^365 - 1 = 8.32%

Bank B = 8%

Bank C = [ 1 + (0.07/365)^365 - 1 = 7.25%

Bank D = [ 1 + (0.07/12)^365 - 1 =7.23%

Bank A has the highest effective annual rate and would be chosen