You plan to invest some money in a bank account.Which of the following banks provides you with the highest effective rate of interest?

Question

Quizplus · Accepted Answer

By inspection, we can see that e dominates b, c, and d because, with the same interest rate, the account with the most frequent compounding has the highest EFF%.Thus, the correct answer must be either a or e.However, we cannot tell by inspection whether a or e provides the higher EFF%.We know that with one compounding period an EFF% is 6.1%, so we can calculate e's EFF%.It is 6.183%, so e is the correct answer.
a.(1 + 0.061/12)12-1 = 6.100%
e.(1 + 0.06/365)365-1 = 6.183%

You Plan to Invest Some Money in a Bank Account