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A commercial bank A pays 6% interest for savings and compounds it quarterly, whereas another bank B pays 6 1/2

January 13, 2007

An investment bank has to pay interest of 6% for the economy and the quarterly report, while the other bank B pays 6 1 / 2% interest rate simple. If a customer wants to deposit $ 500 for 5 years, in which the Bank should deposit? Please show me the formula and the solution .. Thanks ….

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3 Responses to “A commercial bank A pays 6% interest for savings and compounds it quarterly, whereas another bank B pays 6 1/2”

  1. Helmut on January 15th, 2007 12:04 pm

    Bank A
    FV = $500(1.015)^20 = $673.43
    Bank B
    FV = $500(1+0.065*5) = $662.50

    Deposit in Bank A

  2. prat_apr89 on January 16th, 2007 7:08 pm

    For bank pa compunded quarterlymeans 15 rate per yearas it is per yearas it is per quarter number of increments is quarterly scheme so 20 for bank has better investment schememore favourable to customer.
    For bank pa compunded quarterlymeans 15 rate per quarter number of increments is quarterly scheme so 20 for years amount 500 115100^20 6734 interest recieved 17342 bank pa compunded quarterlymeans 15 rate per quarter number of increments.

  3. Fabian A on January 19th, 2007 3:41 am

    Balance of $500.00 after 5 years with the 1st bank:
    $500.00 * (1.0015)^20 = $673.43

    Balance of $500.00 after 5 years with the 2nd bank:
    $500.00 * (1 + [5 * 0.065]) = $662.50

    It’s advantageous to deposit the money in the 1st bank.

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