Which of the Following Bank Accounts Has the Highest Effective

question 73

Multiple Choice

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

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

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Definitions:

Accounts Payable

Liabilities of a company or an organization consisting of money owed to suppliers or creditors for goods and services received that are not yet paid for.

Inventory

Goods or materials that a business holds for the purpose of resale or production.

Cash

Money in the form of coins or notes, as opposed to checks, credit, or other forms of payment.

Net Working Capital

Net working capital, a key indicator of short-term financial strength, is determined by subtracting a firm's current liabilities from its current assets, impacting its ability to meet short-term obligations.