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6 July, 00:06

You are torn between two saving accounts where to put your $1,500 in scholarship money for a year until you need it for next year's tuition. One is in Bank Wan and the other in C-T Bank. Bank Wan is offering a 2.5% nominal rate, with daily compounding of interest, and C-T Bank offers 3.0% with semi-annual compounding. Which one would you choose?

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  1. 6 July, 01:49
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    I would choose to invest in C-T bank since it offers $7.3675 more compared to Bank Wan

    Explanation:

    The two options can be expressed as shown;

    Option 1: Bank Wan

    A=P (1+r/n) ^nt

    where;

    A=Total amount after a given time

    P=Initial deposit

    r-Annual interest rate

    n=number of times the interest is compounded annually

    t=number of years of the investment

    In our case;

    P=$1,500

    r=2.5%=2.5/100=0.025

    n=365 days

    t=1 year

    Replacing;

    A=1,500 (1+0.025/365) ^ (365*1)

    A=1,500 (1.02530

    A=1,537.97

    Total amount after a year=$1,537.97 for Bank Wan

    Option 2: C-T Bank

    P=$1,500

    r=3%=3/100=0.03

    n=2

    t=1

    Replacing;

    A=1,500 (1+0.03/2) ^ (2*1)

    A=1,500 (1.015) ^2

    A=1,545.3375

    Total amount after a year=$1,545.3375 for C-T Bank

    Total amount received to be received from C-T Bank-Total amount to be received from Bank Wan

    = (1,545.3375-1,537.97) = $7.3675

    I would choose to invest in C-T bank since it offers $7.3675 more compared to Bank Wan
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