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Which of the following statements is correct, assuming positive interest rates and holding other things constant? A)...

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Finance

Which of the following statements is correct, assuming positiveinterest rates and holding other things constant?

A) Banks A and B offer the same nominal annual rate of interest,but A pays interest daily and B pays semiannually. A deposit inBank B will have a higher value in five years.

B) Banks A and B offer the same nominal annual rate of interest,but A pays interest quarterly and B pays monthly. A deposit in BankB will have a higher value in five years.

C) Banks A and B offer the same annual rate of interest, but Apays interest quarterly and B pays semiannually. A deposit in BankA will have a higher value in five years.

D) Banks A and B offer the same nominal annual rate of interest,but A pays interest weekly and B pays quarterly. A deposit in BankB will have a higher value in five years

Answer & Explanation Solved by verified expert
4.0 Ratings (378 Votes)
Solution When two bank accounts pay the same rate of interest annually it boils down to their compounding periods The banks who pays interest more frequently during the year would ultimately yield higher value because of the effects of compounding In other words when an interest payment is made that interest gets added to the principal and the next interest is paid on the increased principal So the account that pays    See Answer
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