Question

For long term deposits, Global Savings Bank pays 6.5% per annum, while Bank International pays 6.25%per annum compounded monthly. A good decision will lead to your savings deposit of $10,000 for 5 years, having an extra $ Answer (nearest dollar) in ??? bank.

Answer 1

Global Savings Bank:

We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$10,000*(1.065)^5

=$10,000*1.370086663

=$13700.87(Approx).

Bank International:

We use the formula:
A=P(1+r/12)^12n
where
A=future value
P=present value
r=rate of interest
n=time period.

A=$10,000*(1+0.0625/12)^(12*5)

=$10,000*1.365729902

=$13657.30(Approx)

Hence a good decision will lead to deposit being extra by =($13700.87-$13657.30)

=$44(Approx) in Global Savings Bank.