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What is the effective rate of interest

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Max has 100,000 to invest. The ABC Bank is offering a 1 year term deposit which pays a simple annual rate of interest of 8%. Interest is compounded monthly. (from Q9.12) Then, Max has decided to shop around for the best investment for his $100,000. The XYZ Bank is offering a 1 year term deposit which pays a simple annual rate of interest of 8%. Interest is compounded weekly.

a) What is the effective rate of interest?

b) How much will Max have in his account at the end of one year assuming he makes no withdrawals?

c) All other things being equal should Max deposit his money into ABC or XYZ?

d) When depositing money into an interest bearing account, does the investor prefer more or less frequent compounding?

Reference no: EM133068173

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