Question

You have $5,600 that you want to use to open a savings account. There are five banks located in your area. The rates paid by banks A through D, respectively, are given below. Bank A. APR of 4.61 percent, compounded annually Bank B. APR of 4.15 percent, compounded monthly Bank C. APR of 4.57 percent, compounded semi-annually Bank D. APR of 4.25 percent, compounded quarterly

Answer 1

Answer:

if you want to maximize the amount of interest that you will earn, then you should choose bank C

Explanation:

interest gained in 1 year in bank A = $5,600 x 4.61% = $258.16

interest gained in 1 year in bank B = $5,600 x [(1 + 4.15%/12)¹² - 1] = $236.87

interest gained in 1 year in bank C = $5,600 x [(1 + 4.57%/2)² - 1] = $258.84

interest gained in 1 year in bank D = $5,600 x [(1 + 4.25%/4)⁴ - 1] = $241.82

we have to calculate the effective interest rate paid by each bank using the following formula:

effective interest = (1 + i/n)ⁿ - 1