Question

In: Economics

An online bank is offering to pay 0.25​% interest per month on deposits. Your local bank...

An online bank is offering to pay 0.25​% interest per month on deposits. Your local bank offers to pay 0.65​% interest quarterly​ (every 3​ months). Which is the higher interest​ rate?

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Expert Solution

Answer:-

Effective interest rate for monthly rates = {(1+0.25%) ^12} -1

                                                              = 1.03041 – 1

                                                              = 3.04

Effective interest rate for monthly rates = {(1+0.65%) ^4} -1

                                                              = 1.0263 – 1

                                                              = 2.63

Online Bank is offering higher interest​ rate.

Rahul Sunny answered 2 years ago
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