Question

There are four banks: A, B, C and D:

• Bank A offers an effective annual rate of 4.02%.

• Bank B offers a nominal annual interest rate of 4 %
compounded semiannually.

• Bank Coffers a nominal annual discount rate of 3.96%
compounded monthly.

• Bank D offers a nominal annual interest rate of 3.98%
compounded continuously.

(a) According to this ir rmation, where would you prefer to
open a savings account? Justify your answer. [4 marks]

(b) If you have saved a certain amount of money and deposit it
in the bank of

your choice, how lo will it take you to triple your savings?[3
marks]

( c) Find the equivalent nominal annual discount rate
compounded monthly for

Bank D.

Answer #1

a. in would invest in a Bank which offers highest effective annual interest rate

Bank A Effective Annual Interest = 4.02%

Bank B Effective Annual Interest = (1 + Interest per Semi Annual )^Periods per years -1 = 1.02^2 - 1 = 4.04%

Bank C Effective Annual Interest = (1 + Interest per Month)^Periods per years -1 = 1.0033^12 - 1 = 4.03%

Bank D Effective Annual Interest = EXP(Rate * Time)-1 = EXP(3.98%)-1 = 1.040603 = 4.06%

**I would invest in bank D as it offers highest effective
annual interest Rate**

b. Years it will take to triple Investment in Bank D

Future Value = Investment * EXP(Rate*Time)

3 = 1 * EXP(3.98%*Time)

EXP(0.0398*time) = 3

**Time Required = 27.60 Years (Calculated using Goal Seek
Function in Excel)**

c. equivalent nominal annual discount rate compounded monthly

(1 + Interest per month)^12 - 1 = 4.06%

(1 + Interest per month)^12 = 104.06%

1 + Interest per month = 100.3322%

**Interest per month = 0.3322%**

**equivalent nominal annual discount rate compounded
monthly =interest per month * 12 = 0.3322%*12 =
3.9866%**

Please dont forget to upvote

1.
A bank offers 6.00% on savings accounts. What is the effective
annual rate if interest is compounded daily?
Answer Format: Percentage Round to: 4 decimal places (Example:
9.2434%
2. A bank offers 9.00% on savings accounts. What is the
effective annual rate if interest is compounded continuously?
Answer Format: Percentage Round to: 4 decimal places

Bank A offers a nominal annual interest rate of 4% compounded
daily, while Bank B offers continuous compounding at a 3.4% nominal
annual rate. If you deposit $5,000 with each bank, what will be the
difference in the two bank account balances after 3 years?

1. If a bank advertises a savings account that pays a 6% nominal
interest rate compounded continuously, what is the effective annual
percentage rate?
2. Bank A offers a nominal annual interest rate of 5% compounded
daily, while Bank B offers continuous compounding at a 4.6% nominal
annual rate. If you deposit $3,000 with each bank, what will be the
difference in the two bank account balances after two years?
(Show ALL work and formulas used!)

Edmonton Bank offers to lend you $10,000 at a nominal rate of
6.4%, compounded monthly. The loan (principal plus interest) must
be repaid at the end of the year. Calgary Bank also offers to lend
you the $10,000, but it will charge an annual rate of 6.4%, with no
interest due until the end of the year. What is the difference in
the effective annual rates charged by the two banks? 0.00% 0.59%
0.40% 0.19%

What is the effective monthly interest rate for a loan with a 8%
nominal annual interest rate if the loan is compounded
(a) monthly, (b) daily, or
(c) continuously?
A friend offers you a loan at an effective daily interest rate
of 0.2%. (a) What is the nominal (also known as
the APR or Annual Percentage Rate) rate for this loan?
(b) What is the effective annual interest rate for
his loan?
Show all work please

The following four banks give their the APY (annual percentage
yield) quote on saving: Bank A: 5% APY, annually compounding Bank
B: 5% APY, quarterly compounded Bank C: 4.8% APY, monthly
compounding Bank D: 4.85% APY, Daily compounding The EAR of the
bank that offers the best deal on saving is %?

Exercise IV (effective and nominal interest rate)
a. The effective interest rate is 21.44%. If there are 12
compounding periods per year, what is the nominal interest
rate?
b. What is the effective interest rate on a continuously
compounded loan that has a nominal interest rate of 25%?
c. Which is the better investment, a fund that pays 20%
compounded annually, or one that pays 18.5 % compounded
continuously?
d. Money invested at 6% per year, compounded monthly. How
money...

You have $2,500 to deposit into a savings account. The five
banks in your area offer the following rates. In which bank should
you deposit your savings?
Bank B: 3.69%, compounded monthly
Bank A: 3.75%, compounded annually
Bank E; 3.65% compounded quarterly
Bank D: 3.67% compounded continuously
Bank C: 3.70% compounded semi-annually

Which bank has the best effective annual yield?
A) Badger Bank with a nominal rate of 6.4% compounded
monthly.
B) Wolverine Bank with a nominal rate of 6.34% compounded
weekly.
C) Catamount Bank with a nominal rate of 6.55% compounded
yearly.

a. The effective interest
rate is 21.44%. If there are 12 compounding periods per year, what
is the nominal interest rate?
b. What is the effective interest
rate on a continuously compounded loan that has a nominal interest
rate of 25%?
c. Which is the better
investment, a fund that pays 20% compounded annually, or one that
pays 18.5 % compounded continuously?
d. Money invested at 6% per year,
compounded monthly. How money months you need to triple your
money?...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 37 minutes ago

asked 41 minutes ago

asked 47 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago