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Homework answers / question archive / You are considering three alternative banks in which to open a savings account
You are considering three alternative banks in which to open a savings account. The first bank offers you an annual rate ri, and the interest is paid monthly. The second bank offers a rate r2, and the interest is paid daily. The third bank offers a rate r3, and it offers continuous compounding. Give all answers to four decimal places. 1st attempt Part 1 (1 point) See Hint Suppose you were to save $500.0000 in the first bank. The interest rate is r? = 7.0000%. Three years from now, you should have $
Part 2 (1 point) See Hint Suppose you were to save $500.0000 in the second bank. The interest rate is r2 = 4.0000%. Three years from now, you should have $ Part 3 (1 point) See Hint Suppose you were to save $500.0000 in the third bank. The interest rate is r3 = 1.0000%. Three years from now, you should have $
Part 4 (1 point) See Hint Let the interest rate in the first bank beri = 7.0000%, and you are considering saving your money for 3 years. The interest rate from the second bank that would make you indifferent between the first and second bank is r2 = %. Part 5 (1 point) See Hint Let the interest rate in the third bank be r3 = 1.0000%, and you are considering saving your money for 3 years. The interest rate from the first bank that would make you indifferent between the first and third bank is ri = %.
Accumulated amount after three years = A
Amount deposited today = P = 500,000
Rate of interest = r
Number of years for which it is deposited = 3
1) If compounded monthly @7%: A = P*(1+r/12)^36 = 500,000*(1+7%/12)^36 = 616,462.79
2) If compounded daily @4%: A = P*(1+r/365)^1095 = 500,000*(1+4%/365)^1095 = 563,744.72
3) If compounded continuously @1%: A = P*e^3r = 500,000*e^1%*3 = 500,000*1.0304545 = 515,227.27
4) 616,462.79 = 500,000*(1+r/365)^1095, if you solve for r, you will get r = 6.98%
5) 515,227.27 = 500,000*(1+r/12)^36, if you solve for r, you will get r = 1.0005%
