Question

Universal Bank pays 6% Interest, compounded annually, on time deposits. Regional Bank pays 5% interest, compounded quarterly a. Based on effective interest rates, in which bank would you prefer to deposit your money? 1. You would choose Regional Bank because its EAR (or EFF%) is higher. II. You would choose Regional Bank because its nominal interest rate is higher. TIL. You are indifferent between the banks and your decision will be based upon which one offers you a int for opening an account IV. You would choose Universal Bank because its EAR (or EFF%) is higher V. You would choose Universal Bank because its nominal interest rate is higher.

Answer 1

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? v . 1 23:59 ENG 08-02-2020 39 HC431 . fix x HA GZ HB HC HD HEHE HG HH HIA EAR = (1+r/m)^m-1 m = NO OF COMPOUNDING PER YEAR (a) universal bank 6% compounded annually (1+0.06/1)^1-1 = EAR 6% 412 413 414 415 416 417 418 419 420 421 422 423 regional bank 5% compounded quarterly (1+(0.05/4)^4 - 1= 5.095% ANSWER: IV YOU WOULD UNIVERSAL BANK BECAUSE ITS EAR IS HIGHER (b) 424 425 426 GENERALLY BANKS DO NOT ALLOW TO WITHDRAW MONEY BETWEEN THE YEAR BUT IF BANK ALLOWS THAT, YES, THE CHOICE WILL CHANGE BECAUSE WE CAN NOT WITHDRAW FUNDS IN BANK A FOR A WHOLE YEAR WHERE AS BANK B IS COMPOUNDING DAILY, SO WE CAN WITHDRAW ANY TIME 427 ANSWER:II REGIONAL BANK MIGHT BE PREFERABLE 428 429 430 431 432 433 434 ... pv, fv, annuity CAP STRU VALUE PM, PMT loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPO NPER APR CPI ear FVA pva s2 ...