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.
Ask the Tutor ACCA MA
effective rate
9y ago#1Bank 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?
Yes. I always watch your lecture before any exam kit questions.
Thank you Sir.
9y ago#3You are welcome :-)
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