Question

Allied Bank offers a nominal rate of 5.0% interest, compounded quarterly on a savings account. Standard Bank offers 6.0%
interest compounded annually on a savings account. Which bank will you select to deposit your money?

Answer 1

Lets assume that you have $30000 to deposit.
Calculate the future value of your deposit in 5 years
and based on that future value you can decided which
bank to deposit your money with.
ALLIED BANK
Future Value = C*[(1+(r/m))^mt]
where C is the present value that is 30000.
r is the interest rate that is 5%.
t is the time period in years that is 5.
m is the compounding period that is 4.
Future value = 30000*[(1+(.05/4))^4*5]
Future value = 30000*[(1+.0125)^20]
Future value = 30000*[1.282037]
Future value = 38461.12.
If you deposit your money with Allied Bank, you will
have $38461.12 at the end of 5 years.
STANDARD BANK
Future Value = Present Value*((1+r)^t)
where C is the present value that is 30000.
r is the interest rate that is 6%.
t is the time period in years that is 5.
Future value = 30000*((1+.06)^5]
Future value = 30000*((1.06)^5]
Future value = 30000*[1.338226]
Future value = 40146.77.
If you deposit your money with Standard Bank, you will
have $40146.77 at the end of 5 years.
You will deposit your money with Standard Bank.