Question

Which do you​ prefer: a bank account that pays

5.7%

per year​ (EAR) for three years ora. An account that pays

2.7%

every six months for three​ years?            b. An account that pays

7.1%

every 18 months for three​ years?              c. An account that pays

0.33%

per month for three​ years?

​(Note: Compare your current bank EAR with each of the three alternative accounts. Be careful not to round any intermediate steps less than six decimal​ places.)                          

If you deposit

$1

into a bank account that pays

5.7%

per year for three​ years:The amount you will receive after three years is

​$nothing.

​(Round to five decimal​ places.)a. An account that pays

2.7%

every six months for 3​ years?                                  If you deposit

$1

into a bank account that pays

2.7%

every six months for three​ years:The amount you will receive after three years is

​$nothing.

​(Round to five decimal​ places.)Which bank account would you​ prefer?

▼

5.7% per year for three years

2.7 % every six months for three years

. ​(Select from the​ drop-down menu.)b. An account that pays

7.1%

every 18 months for 3​ years?                                    If you deposit

$1

into a bank account that pays

7.1%

every 18 months for three​ years:The amount you will receive after three years is

​$nothing.

​(Round to five decimal​ places.)Which bank account would you​ prefer?

▼

7.1% every 18 months for three years

5.7% per year for three years

. ​(Select from the​ drop-down menu.)c. An account that pays

0.33%

per month for three​ years?                                               If you deposit

$1

into a bank account that pays

0.33%

per month for three yearsThe amount you will receive after three years is

​$nothing.

​ (Round to five decimal​ places.)Which bank account would you​ prefer?

▼

0.33% every month for three years

5.7 % per year for three years

. ​(Select from the​ drop-down menu.)

Enter your answer in each of the answer boxes.

Answer 1

If you deposit $1 into a bank account that pays 5.7% per year for three​ years:The amount you will receive after three years is
=1*1.057^3
=1.181

Which bank account would you​prefer?
5.7% per year

If you deposit $1 into a bank account that pays 2.7% every six months for three​ years:The amount you will receive after three years is
=1*1.027^6
=1.173

Which bank account would you​prefer?
5.7% per year

If you deposit $1 into a bank account that pays 7.1% every 18 months for three​ years:The amount you will receive after three years is
=1*1.071^2
=1.147

Which bank account would you​prefer?
5.7% per year

If you deposit $1 into a bank account that pays 0.33% per month for three yearsThe amount you will receive after three years is
=1*1.0033^36
=1.126

Which bank account would you​prefer?
5.7% per year