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In: Finance

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

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

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

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

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

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

Solutions

Expert Solution

the lower the interst compounding time cycle the higher the effective interest rate. which means the interest rate continous , daily, weekly monthly , halfyearly, and annually iwill have effective interest from higher to lower rate respectively.

answer :-shorter period cycle will have higher effective rate.

True .A pays interest quarterly and B pays monthly. A deposit in Bank B will have a higher value in five years. becuase month is shorter than quarter.

False ,A pays interest daily and B pays semiannually. A deposit in Bank B will have a higher value in five years.because dialy is shorter period than semiannully.

False A pays interest weekly and B pays quarterly. A deposit in Bank B will have a higher value in five years.because weekly payment cycle is shorter then quarterly payment cycle.

False, A pays interest quarterly and B pays semiannually. A deposit in Bank B will have a higher value in five years. Bank A will have higher interst value.

jeff jeffy answered 1 year ago
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