Assume one bank offers you a nominal annual interest rate of 6% compounded daily while another bank offers you continuous compounding at a 5.9% nominal annual rate.You decide to deposit $1,000 with each bank.Exactly two years later you withdraw your funds from both banks.What is the difference in your withdrawal amounts between the two banks?
A)$2.24
B)$2.35
C)$2.47
D)$2.59
E)$2.72

Question

Quizplus · Accepted Answer

The effective annual rate for daily compounding is slightly higher than for continuous compounding. Calculating the future value for both banks and finding the difference gives approximately $2.24.

Assume One Bank Offers You a Nominal Annual Interest Rate