The Mathematics of Money

4. Melissa plans on opening a 5-year CD. She has gotten rate quotes from three different fi nancial institutions:

Bank Rate Compounding

Ellicott Savings Bank

Little Valley S&L

Seneca Junction Savings

4.97%

5.19%

5.16%

Daily

Annually

Monthly

Which would pay her the most interest?

5. Mohan needs to take out a personal loan. He has gotten rate quotes from three different places. Which one is offering
   the best rate?

Bank Rate Compounding

First Cattaraugus Bank

Chautauqua Mutual Trust

Allegany Federal Credit Union

11.25%

11.01%

10.95%

Annually

Monthly

Daily

B. Finding Effective Rates

Interest rates should be rounded to two decimal places.

6. Find the effective rate equivalent to each of the following nominal rates:

a. 4.35% compounded daily

b. 12.99% compounded monthly

c. 7.05% compounded quarterly

d. 19¾% compounded daily

e. 5% compounded annually

7. Find the effective rate equivalent to each of the following nominal rates:

a. 9% compounded annually

b. 9% compounded semiannually

c. 9% compounded quarterly

d. 9% compounded monthly

e. 9% compounded daily

8. Find the effective rate equivalent to 9.78% compounded daily with bankers’ rule.


9. Find the effective rate equivalent to 13.29% compounded monthly.


10. Find the effective rate equivalent to 4^5 ⁄ 8 % compounded quarterly.


11. Find the effective rate equivalent to 7½% compounded semiannually.

Exercises 3.3 123

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