You have $2,500 that you want to use to open a savings account. You have found f

Question

You have $2,500 that you want to use to open a savings account. You have found five different accounts that are acceptable to you. All you have to do now is determine which account you want to use such that you can earn the highest rate of interest possible. Which account should you use based upon the annual percentage rates quoted by each bank? Account A: 3.75% compounded annually. Account B: 3.70% compounded monthly. Account C: 3.70% compounded semi-annually. Account D: 3.65% compounded continuously. Account E: 3.66% compounded quarterly.

Explanation / Answer

A) return after 1 year 2500*(1.0375) = $2593.75 B) return after 1 year 2500*(1 + (3.7/1200))^12 = $ 2594.084 C) 2500*(1+ (3.7/200))^2 = $ 2593.35 D) 2500 * (1 + (3.65/36500))^365 = $2592.93 E) 2500 * (1+ (3.66/400))^4 = $ 2592.763 Favourable option = B Account B: 3.70% compounded monthly

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