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effective rate

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › effective rate

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • June 16, 2017 at 1:11 pm #393307
    iyamu
    Participant
    • Topics: 286
    • Replies: 171
    • ☆☆☆

    a bank offers different rate bank accounts with different interest rates:

    bank account 1 = 10% interest rate per year, interest calculated quarterly
    bank account 2 = 12% interest per year , interest calculated monthly
    bank account 3= 1.2% interest per month
    bank account 4 = 3% interest per quarter

    which acct gives the highest annual effective interest rate?

    Please , kindly assist on as the answer from kit says
    bank account 3.

    Thanks in advance.

    though i tried to use (1+r)^4 = 1+R
    1+0.1^4= 1+R
    1.4641= 1+R
    R= 0.4641= 46.41% This is to allow use this formula get other rates but i was wrong.

    June 16, 2017 at 5:49 pm #393318
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Bank account 1: Interest is 10/4 = 2.5% every 3 months.
    So the yearly rate: 1 + R = 1.025^4 = 1.1038. R = 10.38%

    Bank account 2: Interest is 12/12 = 1% every month. This is obviously worse than Bank account 3 so not point in wasting time calculating.

    Bank account 3: 1+R = 1.012^12 = 1.1539. R = 15.39%

    Bank account 4: 1+R = 1.03^4 = 1.1255. R = 12.55%

    Have you actually watched the free lectures on this?

    June 16, 2017 at 6:58 pm #393329
    iyamu
    Participant
    • Topics: 286
    • Replies: 171
    • ☆☆☆

    Yes. I always watch your lecture before any exam kit questions.
    Thank you Sir.

    June 17, 2017 at 10:25 am #393364
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘effective rate’ is closed to new replies.

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