Question

Which of the following interest rates would you prefer for investing your money?

a)       one that pays 4.5%, compounded annually

b)      one that pays 4%, compounded daily

c)       one that pays 4.75%, compounded quarterly

d)      one that pays 4.25%, compounded monthly

Answer 1

All such investments with annual percentage rate of 4.75%compounded quarterly will be providing with an effective interest rate of 4.83 % annual which is the highest among all these four options.

other options are offering me lower if compared with the effective interest rate component.

4% compounded daily effective interest rate is 4.08%

4.25 compounded monthly effective interest rate is 4.33 %.

Hence I will be going for compounding quarterly with 4.75% which has an effective interest rate of 4.83%

Correct answer will be option (C) one that pays 4.75%, compounded quarterly