Question

# You want to deposit \$3,000 now into a savings account for 5 years. The Northeast bank...

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 interest.

c) The Southwest bank because it offers an additional \$135 in interest.

d) The Southwest bank because it offers an additional \$ 70 in interest.

e) The Northeast bank because it offers an additional \$ 352 in interest.

 Computation of interest under simple interst method Interest = 3000*12%*5 1800 Computation of interest under compounding interst rate Interest = \$                  1,935 3000*(1+10%/12)^(5*12)-3000 Additional interest = \$                     135 1935-1800 Correct answer is option - c) The Southwest bank because it offers an additional \$135 in interest.

#### Earn Coins

Coins can be redeemed for fabulous gifts.