Solve the Problem. -You Have a Choice of Two Accounts in Which to in Which

question 115

Multiple Choice

Solve the problem.
-You have a choice of two accounts in which to invest your money for one year. Account A pays 3.1% simple interest rate and account B pays 2.5% interest compounded monthly. Compute the Effective annual yield of account B and determine which account has the better rate.

• A) The rates are the same.
• B) There is not enough information to decide.
• C) Account A
• D) Account B

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Definitions:

Inflation Rate

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Hourly Rate

The amount of money paid or earned for each hour of work.

Equivalent

Equal in value, amount, function, meaning, etc.

Rate Optimizer GIC

A Guaranteed Investment Certificate (GIC) that adjusts its interest rate based on market changes to provide optimal returns.