You want to open a savings account. There are five banks located in your area. The rates paid by banks A through E, respectively, are given below. Which bank should you select if your goal is to maximize your interest income?

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Business

Davis Hodge

16 September, 11:45

You want to open a savings account. There are five banks located in your area. The rates paid by banks A through E, respectively, are given below. Which bank should you select if your goal is to maximize your interest income?

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Ayden Holt · Answer 1

Complete 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 E, respectively, are given below. Which bank should you select if your goal is to maximize your interest income?

A. 3.26 percent, compounded annually

B. 3.20 percent, compounded monthly

C. 3.25 percent, compounded semi-annually

D. 3.10 percent, compounded continuously (ignore this selection)

E. 3.15 percent, compounded quarterly

Answer:

3.25 percent, compounded semi-annually bank should select if the goal is to maximize your interest income

Explanation:

If value is accumulated annually, then n = 1; if semi-annually, then n = 2; quarterly, then n = 4; monthly, then n = 12; weekly, then n = 52; hourly, then n = 365; and so on, irrespective of the number of years concerned.

The widely used compounding method for bank savings accounts is quarterly, weekly or semi-annual; it is also hourly for money market accounts.

The time span for each account of the interest is one day and for half-year accounts it is six months. Regular blogs earn 1/365 a year, while half-year posts take place two times a year.