11、Peter Wallace wants to deposit $
§ Bank A offers 5.85 percent annual interest compounded annually.
§ Bank B offers 5.72 percent annual interest rate compounded quarterly.
§ Bank C offers 5.75 percent annual interest rate compounded monthly.
§ Bank D offers 5.70 percent annual interest compounded daily.
Which bank offers the highest effective interest rate and how much?
A) Bank C, 5.90%.
B) Bank D, 5.87%.
C) Bank B, 5.88%.
D) Bank A, 5.85%.
A) 14.34%
B) 12.00%
C) 13.33%
D) 12.55%
A) 4.59%.
B) 4.50%.
C) 4.65%.
D) 4.88%.
11、Peter Wallace wants to deposit $
§ Bank A offers 5.85 percent annual interest compounded annually.
§ Bank B offers 5.72 percent annual interest rate compounded quarterly.
§ Bank C offers 5.75 percent annual interest rate compounded monthly.
§ Bank D offers 5.70 percent annual interest compounded daily.
Which bank offers the highest effective interest rate and how much?
A) Bank C, 5.90%.
B) Bank D, 5.87%.
C) Bank B, 5.88%.
D) Bank A, 5.85%.
The correct answer was
Effective interest rates:
Bank A = 5.85 (already annual compounding)
Bank B, nominal = 5.72; C/Y = 4; effective = 5.84
Bank C, nominal = 5.75; C/Y = 12; effective = 5.90
Bank D, nominal = 5.70, C/Y = 365; effective = 5.87
Hence Bank C has the highest effective interest rate.
12、What’s the effective rate of return on an investment that generates a return of 12 percent, compounded quarterly?
A) 14.34%
B) 12.00%
C) 13.33%
D) 12.55%
The correct answer was D)
Answer: (1+.12/4)4-1=1.1255-1=.1255.
13、A local bank advertises that it will pay interest at the rate of 4.5 percent, compounded monthly, on regular savings accounts. What is the effective rate of interest that the bank is paying on these accounts?
A) 4.59%.
B) 4.50%.
C) 4.65%.
D) 4.88%.
The correct answer was A)
(1+.045/12)12 - 1 = 1.0459 - 1 = 0.0459.
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