Question: Bank A pays 8.5% interest compounded annually on deposits, while Bank B pays 7.5% compounded daily. a. Based on the EAR (or EFF%), which bank

Bank A pays 8.5% interest compounded annually on deposits, while Bank B pays 7.5% compounded daily.

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

  1. You would choose Bank A because its EAR is higher.
  2. You would choose Bank B because its EAR is higher.
  3. You would choose Bank A because its nominal interest rate is higher.
  4. You would choose Bank B because its nominal interest rate is higher.
  5. You are indifferent between the banks and your decision will be based upon which one offers you a gift for opening an account.

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