Question

Savings account A and savings account B both offer APRs of 7%, but savings account A compounds interest quarterly, while savings account B compounds interest semiannually. Which savings account offers the higher APY? A. Savings account A, because it has more compounding periods per year B. Savings account B, because it has fewer compounding periods per year C. Savings account A, because it has fewer compounding periods per year D. Savings account B, because it has more compounding periods per year @countonme123 @ganeshie8

Answer 1

Answer:

A. Savings account A, because it has more compounding periods per year

Step-by-step explanation:

For compound interest we use formula

$A= P(1+\frac{r}{n})^{n*t}$

P is the initial amount , r is the rate of interest, n is the period of compounding and t is the number of years

Let initial amount  in savings account = $100

Account A : interest rate = 7%  and compounded quarterly, year =1

p=100, r=7%= 0.07 , t=1, n=4

$A= 100(1+\frac{0.07}{4})^{4*1}$

A = $107.19

Amount in account A after 1 year = $107.19

Account B : interest rate = 7%  and compounded semiannually, year =1

p=100, r=7%= 0.07 , t=1, n=2

$A= 100(1+\frac{0.07}{2})^{2*1}$

A = $107.123

Amount in account B after 1 year =  $107.12

Amount in account A is more than the amount in account B

because it has more compounding periods per year