ABC Bank offers a return of 9% on a savings account for five years using simple interest while XYZ Bank offers a return of 9% for five years using compound interest.An investor should choose
A)the simple interest option because both have the same basic interest rate.
B)the compound interest option because it provides a higher overall return.
C)the compound interest option only if interest is compounded monthly.
D)the simple interest option only if interest is compounded monthly.
E)the compound interest option because both have the same basic interest rate.

Question

Quizplus · Accepted Answer

The compound interest option should be chosen because it provides a higher overall return. While both options offer a 9% interest rate, compound interest earns interest on the initial principal as well as the accumulated interest over time, resulting in a greater return.

ABC Bank Offers a Return of 9% on a Savings