Bank A pays $4\%$ interest compounded annually on deposits, while Bank B pays $3\mathrm{.}75\%$ compounded daily.

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

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

II$.$ You would choose Bank B because its EAR is higher.

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

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

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

left on deposit during an entire compounding period in order to receive any interest.

withdrawal during the year, then Bank A might be preferable.

year, then Bank B might be preferable.

withdrawal during the year, then Bank B might be preferable.

withdrawal during the year, then Bank B might be preferable.

withdrawal during the year, then Bank A might be preferable.