Answer:
The highest annual interest rate is B. Account 2: Interest is compounded monthly at a rate of 3.25%
Explanation:
Let's recall that the compounded interest formula is:
FV = P * (1 + r/n)ⁿ
where FV is the Future Value, P is the principal or initial deposit, r is the interest rate and n the number of times interest is applied per time period.
Now, let's assume we deposit $ 100 in each account. These will be the balances after 12 months (rounded to the next cent):
- Account 1 = 100 * (1 + 0.0328)¹ = 103.28
- Account 2 = 100 * [1 + (0.0325/12)]¹² = 103.30
- Account 3 = 100 * [1 + (0.031/52)]⁵² = 103.15
- Account 4 = 100 * [1 + (0.0315/360)]³⁶⁰ = 103.20
- Account 5 = 100 * [1 + (0.0325/4)]⁴= 103.29
The highest annual interest rate is B. Account 2: Interest is compounded monthly at a rate of 3.25%