First Simple Bank pays 8.3 percent simple interest on its investment accounts. F

Question

First Simple Bank pays 8.3 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually.

Required: What rate should the bank set if it wants to match First Simple Bank over an investment horizon of 13 years? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Interest rate % ____________________ (round to two decimal places)

Explanation / Answer

First Simple Bank pays 8.3 percent simple interest on its investment accounts. First Complex Bank pays interest on its accounts compounded annually.

Required: What rate should the bank set if it wants to match First Simple Bank over an investment horizon of 13 years? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Interest rate % ____________________ (round to two decimal places)

First Complex Bank should charge:

Interest rate = (1+ Simple interest rate*n)^(1/n) -1

Interest rate = (1+ 8.3%*13)^(1/13) -1

Interest rate = 5.79%

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