posted by fawn on .
I have been staring at this problem forever, and cant seem to dig it up in my book. Please help!
Two competing bank are trying to attract customers.
(a) Ally Bank has an account which earns 25% interest every 10 years. Assuming the interest is compounded weekly, find both the nominal and effective annual interest rates.
(b) Patriot Bank has a continuously compounded account with 3% interest. If 100 dollars is deposited in the account at Ally Bank and 70 is deposited in the account at Patriot Bank, exactly how long will it take for the money in the two accounts to be equal?
N = (1 + E)^12 -1
where N is the nominal interest rate per year; and E is the effective monthly interest rate per year.
For Ally Bank,
(N+1)^10 = 1.25
Use this equation to solve for N:
N+1 = log10(1.25)
N = log10(1.25) - 1
Then use the first equation to find E