Question

Savings account A and savings account B both offer APRs of 5%, but savings account A compounds interest semiannually, while savings account B compounds interest quarterly. Which savings account offers the higher APY?
A. Savings account A, because it has more compounding periods per year
B. Savings account B, because it has fewer compounding periods per year
c. Savings account B, because it has more compounding periods per year
D. Savings account A, because it has fewer compounding periods per year

Answer 1

C. Savings account B because it has more compounding periods per year.

Step-by-step explanation:

Step 1:

Savings account A has an APR of 5% which compounds interest semiannually. This means that savings account A compounds twice in a year. If account A compounds 5% a time, it would compound 5(2) = 10% in a single year.

Step 2:

Savings account B also has an APR of 5% which compounds interest quarterly. This means that savings account B compounds four times in a year. If account B compounds 5% a time, it would compound 5(4) = 20% in a single year.

Step 3:

Savings account A gets an interest of 5% a year while savings account B gets an interest of 10% so account B offers a higher APR because of more compoundings in a year.

Answer 2

Answer:

C. Savings account B because it has more compounding periods per year.

Step-by-step explanation: