Question

2. A local bank has two saving options. One offers 6% interest compound on a daily bases while the other offers 6.5% compounded quarterly. Which saving option would you choose? a. 6% compound daily b. 6.5% compound quarterly c. They are the same.

Answer 1

effective interest rate on 6% interest compound on a daily bases

=((1+(r/m))^(n*m))-1

=((1+(6%/365))^365)-1

=6.18%

effective interest rate on 6.5% compounded quarterly

=((1+(6.5%/4))^4)-1

=6.66%

from above, option with 6.5% compounded quarterly gives higher effective interest rate of 6.66% as compared to other option, so choose b. 6.5% compound quarterly

the above is answer..