Question

You are planning to save your Christmas bonuses from work and are comparing savings accounts: Account A compounds semi-annually while account B compounds monthly. If both accounts have the same effective annual rate of interest and you place only the bonuses in the account, you should choose _

.	Either since you would be indifferent between the two.
	b.	Account B because it has a higher APR.
	c.	Account B because it is compounded more often.
	d.	Account A because it has a higher APR.
	e.	Account A because you will pay less in taxes.

Answer 1

When the number of the compounding period will be increasing then the effective annual interest rate will be increasing so monthly compounding will be returning more money than the semi annually compounding so one should be selecting the monthly form of compounding as the amount of effective annual interest rate will be higher in the long run.

In this case account B is compounding monthly, so it is bound to return more return than Account A which is compounding semi-annually.

Hence the correct answer will be option (B) account be because it has a higher annual percentage rate.