A local bank offers a “Vacation Made Easy” plan as follows: Each participant in the plan...

A local bank offers a “Vacation Made Easy” plan as follows: Each participant in the plan deposists an amount of money, A, at the end of each week during the first 10 weeks of the spring (that is 10 weeks). Then the bank makes 11th, 12th and 13th payments and returns to each participant a grand total of 13A (i.e., no interest being paid by the bank) at the end of week 13 that is used to pay the vacation. What is the effective interest rate per quarter being earned by participants of this plan.

Expert Solution

Given in the question,

Total Period (n) = 13 weeks = 1 quarter

Investment for one quarter (P)= A X 10 = 10A (Payment made by the participant)

Total Effective Interest for one quarter (I) = A X 3 = 3A (Payment made by bank)

Effective interest rate per quarter = I/P X 100 (Substituting the value from above)

= 3A/10A X 100

= 30%

ekkarill92 answered 2 years ago

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