question archive Bank A pays 18
Bank A pays 18
Subject:FinancePrice:2.87 Bought7
Bank A pays 18.0% interest compounded semi-annually (i.e. every six months), while Bank B pays 17.5% interest compounded daily. Which of the following represent the actual annual returns earned in Bank A and Bank B?
A.18.81% and 19.00%
B.18.81% and 19.12%
C.19.03% and 19.24%
D.19.14% and 19.24%
E.19.25% and 19.48%
F.19.25% and 19.60%
G.19.46% and 19.72%
H.19.57% and 19.72%
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Answrer:
B. 18.81% and 19.12%
Bank A, EAR = (1 + r/n)n - 1
= (1 + 18%/2)2 - 1
= 1.1881 - 1
= 0.1881 or 18.81%
Bank B, EAR = (1 + r/n)n - 1
= (1 + 17.5%/365)365 - 1
= 1.191196 - 1
= 0.191196 or 19.12%
