finance

Bank A pays 5% simple interest on its deposit account, whereas Bank B pays interest on its deposit account compounded monthly.
Formulate the quoted and effective interest rates that Bank B should set if it wants to match Bank A, assuming a 6-years horizon period

  1. 👍
  2. 👎
  3. 👁
  1. For bank A, amount of $1 after 6 years
    = 1 + (1)(.05)(6)
    = 1.30

    for bank B, let the monthly rate be i
    amount of $1 after 6 years
    = 1(1+i)^72

    so (1+i)^72 = 1.3
    take the 72 nd root of both sides
    1+i = 1.3^(1/72) = 1.00365..
    i = .00365
    annual rate compounded monthly = .0438 or 4.83%

    1. 👍
    2. 👎

Respond to this Question

First Name

Your Response

Similar Questions

  1. Finance

    First Simple Bank pays 6 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually. Required: What rate should the bank set if it wants to match First Simple Bank over

  2. College alerbra

    Scott invested a total of $9500 at two separate banks. One bank pays simple interest of 11% per year while the other pays simple interest at a rate of 9% per year. If Scott earned $973.00 in interest during a single year, how much

  3. Math

    Jessica wants to accumulate $15,000 by the end of 4 years in a special bank account, which she had opened for this purpose. To achieve this goal, Jessica plans to deposit a fixed sum of money into the account at the end of the

  4. Math

    Find the future value of $800 deposited at 5% for 2 years if the account pays simple interest, and the account pays interest compounded annually

  1. fin

    If you deposit $10,000 in a bank account that pays 10 percent interest annually, how much money will be in your account after 5 year?

  2. Finite Mathematics

    Jessica wants to accumulate $14,000 by the end of 5 yr in a special bank account, which she had opened for this purpose. To achieve this goal, Jessica plans to deposit a fixed sum of money into the account at the end of the month

  3. pre-algebra

    You split $1500 between two savings accounts. Account A pays annual 5% interest and Account B pays 4% annual interest. After one year,you have earned a total of $69.50 in interest. How much money did you invest in each account?

  4. Calculus

    Michael Perez deposited a total of $4000 with two savings institutions. Bank A pays interest at the rate of 5%/year, whereas Bank B pays interest at the rate of 8%/year. If Michael earned a total of $308 in interest during a

  1. differential equation

    If P(t) is the amount of dollars in a savings bank account that pays a yearly interest rate of r% compounded continuously ,then dP/dt=(r/100)(P) , t in years . Assume the interest is 5% annually ,P(0)=$1000 ,and no monies are

  2. Math

    A woman has money in two accounts. One account pays 7% annual interest, whereas the other pays 15% annual interest. If she has $1,500 more invested at 15% than she does at 7% and her total interest for a year is $1,545, how much

  3. matlab

    One bank pays 5.5 percent annual interest, while a second bank pays 4.5 percent annual interest. Determine how much longer it will take to accumulate at least $50 000 in the second bank account if you deposit $1000 initially and

  4. Math

    1. Rishi ram obtained an installment loan for $3,000.00. He agreed to repay the loan in 6 monthly payments. His monthly payments is $516.50. What is the APR? MY ANSWER=0.33% 2. Tim Newman took out a simple interest loan of $1500

You can view more similar questions or ask a new question.