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