Question

You are planning to save your Christmas bonuses from work and are comparing savings accounts: Account A compounds semiannually while account B compounds monthly. If both accounts have the same quoted annual rate of interest and you place only the bonuses in the account, you should choose __________________________.

Select one:

a. either account, since both quote the same rate of interest

b. account A because it has a higher APR

c. account B because it is compounded more often

d. account A because you will pay less in taxes

e. account B because it has a higher APR

Answer #1

c. account B because it is compounded more often

Future value of investment is calculated as: F= P*(1+r/n)^(n*t); where F is Future value of the investment, P is Present value of the investment, r is the annual interest rate, t is the number of years and n is the number of times compounded.

From the formula, Future value of investment increases with n, which is the number of times interest is compounding So, Account B which is compounding more often should be chosen.

You are planning to save your Christmas bonuses from work and
are comparing savings accounts: Account A compounds semi-annually
while account B compounds monthly. If both accounts have the same
effective annual rate of interest and you place only the bonuses in
the account, you should choose _
.
Either since you would be indifferent between the two.
b.
Account B because it has a higher APR.
c.
Account B because it is compounded more often.
d.
Account A because...

You are planning to deposit $1,000 in a savings account. Account
A compounds monthly while account B compounds semiannually. If both
accounts have the same quoted annual rate of interest, you should
choose _______________.
A. account B because it has a higher APR
B. account A because it has a higher EAR
C. account B because it is compounded more often
D. account A because it is compounded at a lower discount
rate

You
currently have $1000 in your savings account. The APR on your
savings account is 9%, and the interest is compounded monthly. If
the annual inflation rate is 6%, how much your current savings will
become in real terms (i.e., in today's dollars) one year from now?
Round your answer to the nearest cent; do not use the $ sign (i.e.,
if the result is $1,234.5678, enter it as 1,234.57).

Two standard savings accounts, A and B, have an AER of
3%. Account A pays interest every quarter, and Account B every
month. Work out whether the interest paid at the end of the year is
higher for Account A, for Account B or the same for both accounts,
assuming the same amount was invested in each account initially

1. You originally opened a savings account with a $4,000
deposit. Today the account has a balance of $10,000. 7 years have
passed since you opened the account. What rate of interest have you
earned assuming the account has compounded annually?
2.You just deposited $5,000 into an account. If you allow the
money to grow for 9 years, what will be your ending account
balance? Assume the account has earned 8% compounded quarterly.
3.You originally opened a savings account with...

21. Suppose you save $8,000 in a saving account for two years.
For the first year the interest rate is 9.9% compounded monthly,
while during the second year the interest rate is 11.6% compounded
monthly. What is the balance in your savings account after the
second year?
(a) $9,743.78 (b) $9,909.35 (c) $9,811.87 (d) $17,807.91

You are planning to deposit $100,000 into a bank account and to
leave the funds on deposit for 12 years. Bank A pays interest at a
rate of 3%, compounded annually. Bank B pays interest at a rate of
2.5%, compounded semiannually. Bank C pays interest at a rate of
2.2% compounded daily.
If you put your money into Bank A, how much will you have in
the account after the 12 years?
If you put your money into Bank...

If you deposit $3000 in a savings account for six years, and
your bank has an interest rate of 6.00% for the first $500 that was
deposited and 0.10% for the remaining $2500. The interest rate is
compounded monthly. What would the amount be in the account after
six years?

16. You have $1,000 to deposit in a savings account for 1 year.
You can get a passbook savings
account drawing 7.75% interest compounded continuously, or a
certificate of deposit paying 8%
compounded quarterly, or a savings bond paying 8.25% compounded
annually. Which alternative
should you take?
a. 7.75% compounded continuously
b. 8% compounded quarterly
c. 8.25% compounded annually
d. all of the above are have equal annualized yields
17. You are considering two investments described below:
Investment
A 10%...

You are retiring and you have $300000 save in your retirement
account today. The account earns interest at an annual rate of 12%.
You are considering several alternatives for your payments.
Determine the payment amount under each of the following
circumstances:
a) Your payments are received annually for the next 20 years and
interest is compounded annually:
b) Your payments are received semi- annually for the next 20
years and interest is compounded semi- annually:
c) Your payments are received...

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