Savings account A and savings account B both offer APRs of 5%, but savings account A compounds interest annually, while savings

Question

Llana [10]

3 years ago

6

Savings account A and savings account B both offer APRs of 5%, but savings account A compounds interest annually, while savings

account B compounds interest monthly. Which savings account offers the higher APY?

Mathematics

2 answers:

shepuryov [24] · Answer 1 · 2022-02-13T17:37:54+03:00

<h2>Answer:</h2>

Account B will yield more.

<h2>Step-by-step explanation:</h2>

Savings account A and savings account B both offer APRs of 5%

But savings account A compounds interest annually, while savings account B compounds interest monthly.

Lets check which account will yield more :

<h2>Account A.</h2>

Lets take p = 10,000

r = 5% or 0.05

n = 1

t = 1

Compound interest formula is :

$p(1+\frac{r}{n})^{nt}$

Substituting values in formula;

$10000(1+\frac{0.05}{1})^{1}$

= $10500

<h2>Account B:</h2>

Lets take p = 10,000

r = 5% or 0.05

n = 12

t = 1

Compound interest formula is :

$p(1+\frac{r}{n})^{nt}$

Substituting values in formula;

$10000(1+\frac{0.05}{12})^{12}$

= $10510

We can see that account B gives more yield as compared to account A. When an account is compounded monthly, we earn interest on interest. This is why we yield more.

Therefore, account B will yield more.

Volgvan · Answer 2 · 2022-02-13T19:00:24+03:00

Answer:

Account B

Step-by-step explanation:

When compounding interests monthly that means that there will be 12 times a year that the interests will be compounded, while in the other option the interests will only be compounded one time a year. Since that is the case, the one that will produce more interests for the person opening that account would be B since the interests are compounded annually.