Which of the Following Bank Accounts Has the Highest Effective

question 52

Multiple Choice

Which of the following bank accounts has the highest effective annual return?

• A) An account that pays 8% nominal interest with monthly compounding.
• B) An account that pays 8% nominal interest with annual compounding.
• C) An account that pays 7% nominal interest with daily (365-day)compounding.
• D) An account that pays 7% nominal interest with monthly compounding.
• E) An account that pays 8% nominal interest with daily (365-day)compounding.

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Definitions:

Amortized Cost Model

An accounting method where the carrying amount of a financial asset or liability is adjusted for amortization of discount/premium and impairment losses.

Year End

The end of a fiscal year when a company completes its accounting period and financial statements are prepared.

Non-Strategic Investments

Investments made by a company in assets or other companies that are not central to its main line of business or long-term objectives.

Purchase Cost

The total amount paid to acquire an asset, including any additional charges necessary to bring it to its intended use.