First Simple Bank pays 8 percent simple interest on its investment accounts. If

Question

First Simple Bank pays 8 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 8 years? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

First Simple Bank pays 8 percent simple interest on its investment accounts. If First Complex Bank pays interest on its accounts compounded annually, what rate should the bank set if it wants to match First Simple Bank over an investment horizon of 8 years? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

First Complex Bank should set 6.3788% as rate of interest if the bank wants to match First Simple Bank over an investment horizon of 8 years Let the Amount invested in First Simple bank is 100 Interest Every Year @8%(100*8%)                            8.00 Total Interest in 8 Years(8*8)                         64.00 Total Amount at end of 8 Years(100+64)                       164.00 Now   Amount after 8 Years                       164.00 Principal                       100.00 Time   8 years A = P(1+r/100)^n 164 = 100(1+r/100)^8 1.64 = (100+r)/100^8 1.063788 = (100+r)/100) 106.3788 = 100+ r r = 6.3788%

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