Comparing Bank Savings Rates Bank A pays a nominal rate of 1.800% compounded daily on deposits. Bank B produces the same annual yield as Bank A but compounds interest only quarterly and pays no interest on funds deposited for less than an entire quarter. (a) What nominal rate does Bank B pay (to the nearest thousandth of a percent)? (b) Which bank should Nancy choose if she has $2000 to deposit for 10 months? How much more interest will she earn than in the other bank? (c) Which bank should Dara choose for a deposit of $5000 for one year? How much interest will be earned?
Comparing Bank Savings Rates Bank A pays a nominal rate of 1.800% compounded daily on deposits. Bank B produces the same annual yield as Bank A but compounds interest only quarterly and pays no interest on funds deposited for less than an entire quarter. (a) What nominal rate does Bank B pay (to the nearest thousandth of a percent)? (b) Which bank should Nancy choose if she has $2000 to deposit for 10 months? How much more interest will she earn than in the other bank? (c) Which bank should Dara choose for a deposit of $5000 for one year? How much interest will be earned?
Solution Summary: The author explains how to calculate the nominal rate of bank B by using the formula: r=1.804%.
Comparing Bank Savings Rates Bank A pays a nominal rate of 1.800% compounded daily on deposits. Bank B produces the same annual yield as Bank A but compounds interest only quarterly and pays no interest on funds deposited for less than an entire quarter.
(a) What nominal rate does Bank B pay (to the nearest thousandth of a percent)?
(b) Which bank should Nancy choose if she has $2000 to deposit for 10 months? How much more interest will she earn than in the other bank?
(c) Which bank should Dara choose for a deposit of $5000 for one year? How much interest will be earned?
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