Question: Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily. a. Based on the EAR (or EFF%), which bank

Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily.

a. Based on the EAR (or EFF%), which bank should you use?

a. You would choose Bank A because its EAR is higher.

b. You would choose Bank B because its EAR is higher.

c. You are indifferent between the banks and your decision will be based upon which one offers you a gift for opening an account.

d. You would choose Bank A because its nominal interest rate is higher.

e. You would choose Bank B because its nominal interest rate is higher.

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