First simple bank pays 9.4 percent simple interest on its investment accounts. F

Question

First simple bank pays 9.4 percent simple interest on its investment accounts. First complex Bank pays interest on its accounts compounded annually. What rate should the bamk set if it wants to match First Simple Bank over an investment horizon of 14 years?
First simple bank pays 9.4 percent simple interest on its investment accounts. First complex Bank pays interest on its accounts compounded annually. What rate should the bamk set if it wants to match First Simple Bank over an investment horizon of 14 years?

Explanation / Answer

We need to equate the future values in both the cases.

Future value for simple interest = n*r

n - no. of years

r - interest rate

FV = 14*0.094 = 1.316

FV of compound interest = (1+r)^n

Equating this to the simple FV

(1+r)^14 = 1.316

r = 0.0198 = 1.98% per annum.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.