Josh deposit $100,000 for 1 yea. Bank A: 6% interest Annually BanK B: 6% interest Semi-Annually Bank...
Josh deposit $100,000 for 1 yea.
Bank A: 6% interest Annually
BanK B: 6% interest Semi-Annually
Bank C: 6% interest Quarterly
Bank D: 6% interest Monthly
Bank E: 6% interest Daily
Bank F: 6% Continue Continuously
1. Which bank should Josh goes?
2. Calculate EAR (Bank A - F )
Homework Answers
| 1 | Josh should choose Bank F: 6% continously compouding. As it will offer highest annual effective interest. | |||||
| 2 | Calculation of EAR | |||||
| Banks | Calculation | Effective annual return | ||||
| Bank A | 6% | 6% | ||||
| Bank B | (1.03)^2-1 | 6.09000% | ||||
| Bank C | (1.015)^4-1 | 6.13636% | ||||
| Bank D | (1.005)^12-1 | 6.16778% | ||||
| Bank E | (1.00016438)^365-1 | 6.18299% | ||||
| Bank F | (e )^(6%*1) | 6.18313% | ||||
*if you have any doubt. please feel free to ask in the comment section. Please give your valuable feedback.
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