Barry, a recent engineering graduate, never took engineering economics. When he

Question

Barry, a recent engineering graduate, never took engineering economics. When he graduated, he was hired by a prominent architectural firm. The earnings from this job allowed him to deposit $750 each quarter into a savings account. There were two banks that offered savings accounts in his town (a small town!). The first bank was offering 4.5% interest compounded continuously. The second bank offered 4.6% compounded monthly. Barry decided to deposit in the first bank because it offered continuous compounding. Did he make the right decision?

Explanation / Answer

Continuous compounding has an effective rate of e^(.045)= 4.603% Monthly has (1+.046/12)^12= 4.70% No, he didn't make the right decision.

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