Question

You want to open a savings account and you have 3 choices: 1) a saving account that pays interest of 7.2% compounded quarterly (In other words, it offers an APR=7.2%, compounded quarterly), 2) a saving account that pays interest of 6.8% compounded monthly, and 3) a saving account that pays interest of 7% continuously compounded?

Which one do you prefer?

Answer #1

First calculating Effective annual rate for all the options.

option 1). APR = 7.2% compounded quarterly,

So, Effective annual rate, EAR = (1 + APR/n)^n - 1

for quarterly compounded, n = 4

=> EAR = (1 + 0.072/4)^4 - 1 = 7.40%

Option 2). APR = 6.8% compounded monthly,

So, Effective annual rate, EAR = (1 + APR/n)^n - 1

for monthly compounded, n = 12

=> EAR = (1 + 0.068/12)^12 - 1 = 7.02%

Option 3). APR = 7% compounded continuously,

For Compounded continuously, EAR = e^APR - 1 = e^0.07 - 1 = 7.25%

Since highest interest rate paying saving account is option 1, it should be preferred.

You have $5,000 that you want to use to open a savings account.
There are five banks located in your area. The rates paid by banks
A through E, respectively, are given below. Which bank should you
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"4.10 percent, compounded continuously"
"4.25 percent, compounded semi-annually"
"4.20 percent, compounded quarterly"
"4.15 percent, compounded monthly"
"4.28 percent, compounded annually"

You want to deposit $3,000 now into a savings account for 5
years. The Northeast bank offers an APR of 12% with simple interest
while the Southwest bank offers an APR of 10% with monthly
compounding. Which bank would you prefer and why?
a) The Northeast bank because it offers an additional $ 229 in
interest.
b) The Northeast bank because it offers an additional $ 130 in
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c) The Southwest bank because it offers an additional $135 in...

Would you rather have a saving account that pays 5% interest
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If you have $1000 in saving, after one year how much you have in
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Show your work.

You have decided to begin saving for a vacation to Hawaii. You
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the nearest whole month.

You
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savings account is 9%, and the interest is compounded monthly. If
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Round your answer to the nearest cent; do not use the $ sign (i.e.,
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You can get a passbook savings
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